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The National Association of Credit Management's (NACM's) 117th Annual Credit Congress kicked off in Las Vegas this morning with an insightful presentation by Terry Jones, founder of Travelocity and author of On Innovation.

Jones tailored his comments specifically to fit the audience of over 1,200 credit and risk management professional, relying on his lengthy track record of internet business success to open attendees' eyes to new perspectives on how companies can grow in an interconnected world. First, Jones noted that innovation and creativity are separated by one important difference. “Creativity is thinking up new things. Innovation is about doing,” he said. “It's about putting an idea to work,” Jones added, showing a humorous slide that illustrated “the thinker and the doer” in which the doer was nowhere to be found. “The doer left,” said Jones. “He's out doing.”

The speed of today's business world requires companies to embrace change and accommodate what's become a very powerful buyer. “We're talking about innovation because change continues to accelerate,” said Jones. “We're living today in a wired world. Customers are getting smarter and they have those tools in their toolbox. This new world is a world where choice happens instantly. It's a world where prices are transparent.”

Information, said Jones, had escaped thanks to the Internet. “It's found its freedom,” he noted. “It's being beamed to us all the time and we are empowered by it.” Companies that fail to accept this new reality and cling to refrains like “we've always done it this way” will find themselves left behind as other, smarter companies embrace change and aim to thrive in it. “If you don't like change,” said Jones, “you're going to like irrelevance even less.”

Jones went on to discuss the big structural changes that are required for companies to create what he called “a culture of innovation.” “It's about new service models, new payment models,” he said. “It's about taking a little bit of money and making it a bigger pile of money.”

Innovation, according to Jones, has two pillars: the culture and the team. The former aspect is often where companies tend to lose themselves, he observed. “Culture eats strategy for lunch. If you don't have the right culture, it doesn't matter how good the planning effort is,” said Jones. “You simply won't move forward unless you create a culture of innovation.”

What Jones urged attendees to build was a culture where failure isn't necessarily a bad thing, describing a “culture of innovation” as “a place where creativity can exist.” “Innovation is not the Olympics,” Jones said. “Innovation is like baseball, and in baseball, if you fail 70% of the time, you're actually doing pretty good.”

Jones was just the first of many presentations scheduled at this year's Credit Congress that aim to give today's credit and risk professionals the knowledge they need to thrive now and in the future. He greeted attendees and signed copies of his book, On Innovation, in the NACM booth at the Credit Congress Exhibition Hall after his enlightening presentation.

- NACM
 

The Basel III standards for international banking are set to take effect within months. And despite numerous attempts to clarify sections of the accord, there is still so much unknown about the impact the changes will actually have, said panelists at the Finance Credit & International Business Association (FCIB) Annual International Credit & Risk Management Summit in Prague.

Elisabeth Sutter-Becska, vice president, head of global export finance at Raiffeisen Bank International in Austria, says rising importance of the trade credit role and for funding costs, among other increased costs in general, should be expected. As such, trade creditors and their businesses should be preparing in a number of ways in the near-term: Reassess working capital management, consolidate treasurer operations, optimize payment streams, improve receivables management, shorten payment tenors when possible and diversify resources. Still, it is hard to plan actions because of how difficult it is to predict what will actually occur.

“Nobody can say what is going to come from the three regulation, and there are not studies that have determined what would be the affect on the real economy,” she told FCIB delegates.

Meanwhile, panelist Neil Ross, trade credit insurance profit centre manager EMEA, AIG Euopre Limited in the United Kingdom, also voiced concerns about potential confusion about what will actually happen.

“One of the things that strikes me, you have the Basel III rules, but it's up to each country to interpret the rules; each country has slightly different interpretation,” said Ross. “It makes it much more complicated.”

Ross added that credit insurance will likely play a a bigger role as banks are “under pressure to keep head counts down...Doing analysis on thousand of buyers is frankly not where the banks want to be right now.”

-Brian Shappell, CBA, CICP, NACM staff writer

The Finance, Credit and International Business Association (FCIB) will hold its first Spring Conference at the National Association of Credit Management’s (NACM’s) 117th Credit Congress & Exposition on May 18-21, 2013 at the Rio Hotel in Las Vegas. NACM's Credit Congress has always provided a venue for both domestic and international credit professionals who extend business-to-business credit, but with the inclusion of a specialized Spring Conference comes a focus on the growing opportunities in global trade.

“The purpose of the FCIB Spring Conference is to expand the knowledge base for U.S. companies that are starting to export, and to further educate and provide tools for the advanced international credit management executive,” said Marta Chacon, CICP, FCIB Director - The Americas. “The specially-designed sessions will address the pressing issues facing international trade professionals around the world, and provide the solutions that work in various global markets.”

The FCIB sessions, integrated into the Credit Congress schedule of events, focus on expanding the efficiencies in international credit management. Topics include how to create profit, reduce risks, identify the potential pitfalls in exporting, discuss ethical compliance in order to work effectively on a global level and cover the intricacies of doing business in the United States' largest trading partners, Canada and Mexico.

The Spring Conference comes on the heels of other noteworthy FCIB endeavors. Earlier this month, FCIB entered into a strategic partnership with the U.S. Commercial Service to promote exporting under President Barack Obama's National Exporting Initiative (NEI), which aims to double U.S. exports by the end of 2014. The partnership aims to make it easier for all U.S. companies to take advantage of exporting opportunities offered around the globe, with FCIB acting as a portal through which exporters can find the tools and resources they need. Under the partnership, FCIB has already played a role in the development of the third edition of the International Trade Agency’s Trade Finance Guide, and the first Spanish-language version of the guide.

“With an estimated 95% of the world’s buying power existing outside the United States, U.S. businesses of all sizes should consider the benefits of selling their products and services abroad,” said Chacon. “By incorporating a spring conference into the yearly Credit Congress, FCIB furthers its role in helping companies expand into the international market. With FCIB's sessions open to all registrants, those looking to begin exporting, as well as already-advanced international trade professionals, receive the benefits of tailored education, in addition to numerous networking opportunities and an expo of product and service providers that a large venue offers.”

FCIB and NACM welcome walk-in registrants and the press.

- FCIB

In a meeting that followed the Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit, members of the European Commission promoted the purposes and potential for success of the European Late Payment Directive. Those many aren't convinced that setting harder limits on the amount of days government entities and debtor companies will actually cause positive change and trump local laws, especially in places where slow paying is an engrained culture, some see it as an important step.

“It’s the best thing to happen in credit management in a decade because now we have European [Union] support. That gives us higher profile as credit managers,” said Mark Harrison, chief executive of the Czech Institute of Credit Management during a panel during the FCIB event.

In an FCIB interview onTuesday, Antti Peltomaki, deputy director-general of the European Commission’s Enterprise and Industry Directorate-General, said he understands the those being skeptical over the speed of cultural change, but sees the Directive as a critical step in the right directions for credit-granting businesses. “It is good and important to have the legal framework...It is up to you whether you want to do something," said Peltomaki.

-Brian Shappell, CBA, CICP, NACM staff writer  
The extended version of this story, including more from Peltomaki, published in this week's edition of eNews, is available by clicking here.

At this week’s Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit in Prague, two FCIB members—Angela Bradbury, ICCE and Daniel Van Damme—were presented with its distinguished Service, Development and Growth (SDG) Award.

Bradbury, group credit and payable manager with Innospec, Inc. in the United Kingdom, and Van Damme, group working capital manager with Tessenderlo Chemie SA in Belgium, joined the short list of SDG award winners. Van Damme serves as the chairperson of the Chemicals Industry Group and Bradbury serves on FCIB’s European Advisory Council and is a frequent conference speaker, taking part in the Prague summit and scheduled to present at next week’s Credit Congress in Las Vegas.

“They have tirelessly worked to educate their staff, to really contribute and give back into the international credit community,” said Noelin Hawkins, FCIB director, Europe, The Middle East & Asia. “I can’t recall anyone working harder.”

The award is designed recognize the valuable contributions volunteers are making to further grow and develop FCIB’s member services and to encourage more people to serve. The first winner of the award, Mannes Westhuis, LL.M., CICP, Bierens Debt Recovery Lawyers, also eloquently described it as something that represents a win-win situation for today’s international credit-related professional: getting in touch with customers and information on leads, while “being socially and professionally responsible.”

- Brian Shappell, CBA, CICIP, NACM staff writer

All eyes have been on Spain when it comes to nervous businesses owners, credit professionals and other market-watchers wondering when the next European sovereign insolvency is going to occur. And while it would be overly optimistic to assume that danger wasn't imminent in Spain, a top four economy, by size, on the continent, another nation may beat it to default: Slovenia. At least that was the sentiment at FCIB's Annual International Credit & Risk Management Summit in Prague.

“Slovenia is far riskier than Italy or Spain,” said FCIB panelist Silvina Aldeco-Martinez, managing director of Risk Analytic Products, Standard & Poor's. She noted that, unlike Spain, it's not overall risk throughout many sectors; it's just massive problems in its banking sector.

Freddy Van den Spiegel, of BNP Paribas Fortis, agreed that Slovenia may slide into insolvency and that Spain faces many issues. Because of the nature of the problems and size/importance of its economy to the EU, Spain's filing, should it occur, would be a significantly bigger event. He said the prospects for Spain continue to generate pessimism because its high unemployment (25% among the young) shows little signs of improving because the nation doesn't have solid products and brands to make them competitive and, thus, pull themselves out of the rut. The big problem therein is that France, once hoped to help the recovery financially as much as Germany, holds so much Spanish debt.

“If it happens, we'll see what happened in Cyprus: panic,” the Belgian-based economist said. “If Spain gets into trouble, then France comes onto the radar”

All that said, Van den Spiegel still believes the European Union and the common currency will survive, but in a setting of more centralized EU power both in lawmaking and on the part of the European Central Bank.

-Brian Shappell, CBA, CICP, NACM staff writer

Off the strength of continued growth as a hub for service centers and more generalized outsourcing, nations in eastern Europe, Soviet Bloc countries until the late 1980s, are emerging as slightly bigger players in the business and credit world. However, the corporate information emanating from there often is not entirely trustworthy, said panelists at FCIB's Annual International Credit & Risk Management Summit in Prague.

FCIB panelist Elisabeth Sutter-Becska, of Raiffeisen Bank International in Austria, noted that problems with performing loans levels in Ukraine and Russia are increasing again after a few years of improvement. Fellow FCIB panelist Fabrice Morel, of Berne Union, noted there was a major spike in 2008 as well, one that showed the long-term stability of credit insurance companies in Europe in some ways, but that the four following years marked a time when issues had been mitigated in significant fashion.

The potential for another spike stems from the quality of information on the businesses in several eastern European nations. Kateryna Barabash, managing director and owner of IBcontacts, a Ukraine-based firm dealing in credit, legal and news services, said the information can be hard to analyze...if a credit manager can even get it at all.

“You have to realize there is a lot of information that is incorrect or out of date,” Barabash said, adding that a high level of nepotism plays into what is released by companies. “You have to verify this information with a buyer and your partner...don't rely just on existing database information.” Beyond that, she noted that perhaps the even bigger problem is getting data like financials since estimates of the rate of refusal for such requests tracks between “60% and 70%.”

In short, her sentiment was, if the company is not being transparent, they are very likely hiding something important in the grand scheme of creditworthiness.

-Brian Shappell, CBA, CICP, NACM staff writer

Those hoping for short-term optimism, especially on most member nations of the European Union, at the start of the content portion of FCIB's Annual International Credit & Risk Management Summit in Prague Monday got a bit of reality check from the Belgian-based economist serving as keynote speaker. However, he did note that the idea that there will be bumps, if not occasional “chaos,” doesn't mean things will always be bad between now and the increasingly far-off recovery.

Freddy Van den Spiegel, of BNP Paribas Fortis, said the global economy has largely experienced its chaos moment in the last several years since various bubbles burst in key nations like the United States and some in Europe. That said: credit professionals should not consider that moment to be something of the past.

“The chaos moment is still continuing; this is the world in which we are,” said Van den Spiegel. “But there is a natural chaotic nature of any system or human behavior. And you can't just hide until the storm is over.” As such, strong risk management practices are going to continue to grow in importance in credit departments, but they will also grow in difficulty.

Meanwhile, perhaps the biggest event that needs to happen, in Van den Spiegel's view, is the European Union finally moving towards a more united bloc on issues of banking and politics. That includes having a true “president” type figure as well as a European Central Bank that exists more like the Federal Reserve of the U.S. in scope. But politics may keep that on hold because of the the election in Germany, by far the strongest EU member, coming up in September.

Van den Spiegel noted that it was unlikely anything would happen before then because the current leadership backing plans to ease back on austerity elsewhere and essentially fund bailouts in places that have not been as fiscally responsible could raise the ire of German voters. But, he believes, the Merkel government will come around, assuming the incumbents remain in power.

“There are really no other solutions,” he said. “The hurdle is that austerity on countries that failed limits their ability to grow. If they cannot grow, they cannot recover. You need balance right now.”

-Brian Shappell, CBA, CICP, NACM staff writer

The Finance, Credit and International Business Association (FCIB) is already an important global source of exporting education and professional networking. Now, however, the association is expanding to become a portal through which exporters of all sizes can find the tools and resources they need to effectively grow their business through international trade.

Most recently, at the Port of Los Angeles' Trade Connect seminar held on May 8, FCIB, in partnership with the U.S. Department of Commerce's International Trade Administration (ITA), unveiled the first-ever Spanish-language edition of the ITA's Trade Finance Guide. FCIB member Diego Jiménez, ICCE, credit analyst at Accuride International, Inc., was instrumental in the review of the translated guide, as well as to the program of this week's Trade Connect seminar. Another FCIB member, Timothy Bastian, ICCE, corporate credit manager for Western Oilfields Supply Company, also presented a session at the event.

The announcement came on the heels of FCIB and ITA signing a new memorandum of understanding (MOU) in order to increase awareness in the U.S. business community, particularly among small and medium-sized businesses, of the opportunities offered by exporting, as well as the tools and resources available to companies through the two organizations. The MOU builds on previous collaborations between FCIB and ITA, beginning with the drafting of the original Trade Finance Guide, its subsequent updates and now its first Spanish-language edition.

“By working together, FCIB and ITA are making it easier for all U.S. companies to take advantage of the exporting opportunities offered around the globe," said FCIB's Director–Americas Marta Chacon, CICP. "The Trade Finance Guide, which is now in its third edition and is now available to Spanish-speaking business owners, is only the first step in what will be a long line of collaborations geared toward unlocking world markets for businesses of all sizes."

Through the MOU and updated Trade Finance Guide, FCIB is becoming more deeply ingrained in the policy goals outlined in President Barack Obama's National Exporting Initiative (NEI), which aims to double U.S. exports by the end of 2014. FCIB's partnership with ITA puts them in good company with the U.S. Commercial Service's other strategic partners and will enable the association to better support the goals of the NEI by educating U.S. businesses about the benefits of exporting and directing them to the wealth of public and private resources available to assist them.

- FCIB
 

The financial troubles and subsequent attempts/talks of a second run at filing for municipal bankruptcy in Harrisburg, PA have taken many twists and turns. The latest wrinkle came this week in the form of the first-ever Securities and Exchange Commission charges of security fraud, charges the city in question has agreed to settle, against a municipality.

The SEC alleges the city’s officials made a series of “misleading public statements” regarding its financial condition in various places: its budget report, annual and mid-year financial statements, the mayor’s “State of the City” address. The agency noted that such failures of compliance and “misstated” information  left creditors with little in the way of reliable information when assessing the city, notably from 2009 through 2011.

“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” said SEC’s George Canellos. Harrisburg notably missed $13.9 million general obligation debt service payments on March 15.

In 2011, Harrisburg’s city council defied the wishes of the state and its own mayor by voting to file for Chapter 9 bankruptcy. Supporters of doing so said it would give the city leverage to renegotiate debt largely tied to a massively unsuccessful trash incinerator project, once so wrongly predicted to be a financial windfall for the city (the SEC listed debt from the project at $260 million), and provide more of a fair option to local taxpayers that didn’t want to take a hit out of proportion to that of investors. State and mayoral plans to sell off city assets such as parking garages and the incinerator operation, as well as raise taxes, were rejected by the council. Still, Harrisburg’s filing was rejected when a judge upheld a hastily-passed Pennsylvania law aimed at temporarily blocking third-level cities in the state from filing.
 
- Brian Shappell, CBA, NACM staff writer

The Finance, Credit and International Business Association (FCIB) and the U.S. Commercial Service of the U.S. Department of Commerce’s International Trade Administration (ITA) have signed a Memorandum of Understanding (MOU) to increase awareness in the U.S. business community, particularly among small and medium-sized businesses, about exporting and the tools and resources our organizations provide to help them succeed.

“We’re pleased to welcome FCIB as a partner in our efforts to strengthen the U.S. economy and support local jobs through expanding U.S. exports,” said Under Secretary of Commerce for International Trade Francisco Sánchez. “With more than 95 percent of potential customers living outside U.S. borders, it’s imperative that American companies of all sizes consider the benefits of selling their products abroad.”

The MOU builds on previous collaborations between FCIB and ITA, including the development of the third edition of ITA’s Trade Finance Guide: A Quick Reference for U.S. Exporters and a first-ever Spanish-language version of the guide, available soon. Written in plain and easily understood language, the Trade Finance Guide provides exporters of all sizes with what they need to know in order to use exports to grow their business.

“By working together, FCIB and ITA are making it easier for all U.S. companies to take advantage of the exporting opportunities offered around the globe. The Trade Finance Guide, which is now in its third edition and will soon be available to Spanish-speaking business owners, was only the first step in what will be a long line of collaborations geared toward unlocking world markets for businesses of all sizes,” said FCIB’s Director–Americas Marta Chacon, CICP. “FCIB is looking forward to acting as a portal through which exporters can find the tools and resources they need to effectively conduct international trade.”

Under the MOU, FCIB and U.S. Commercial Service’s network of worldwide offices will work together on marketing, education programs and events leveraging both entities’ expertise to help make U.S. businesses—and particularly small and medium-sized firms—more export savvy. Joint activities may include building awareness through outreach at trade shows, direct mail campaigns and online registration for resource support.

In 2010, President Barack Obama announced the National Export Initiative (NEI) with the goal of doubling U.S. exports by the end of 2014. The partnership supports this goal by educating U.S. exporters about the benefits exporting and expanding their exports to additional markets, and the public and private sector resources to assist them. FCIB joins several of the U.S. Commercial Service’s Strategic Partners who have connected more than 1,500 companies to federal export assistance.

- FCIB and the U.S. Commercial Service
 

The Third Circuit has long been perceived as the most efficient, and perhaps most filer-friendly, when it comes to corporate bankruptcies. Perhaps it's why the district is seen as the most likely choice for filings. However, the latest numbers from the U.S. Bankruptcy Courts note that business filings coming from the district place it only in third among the 11 districts.

Chapter 11 bankruptcy filings throughout the nation declined by more than 10% during a one-year period between the end of March in 2012 and this year. The total now sits at 9,811, down from March 2012’s 11,339. The total of all types of bankruptcies also dropped by more than 10% to 1.17 million. Still a tiny percentage overall, Chapter 9 (municipal bankruptcy) filings increased to 20 between March 2012 and March 2013 from 13 during the previous 12 months.

Within the numbers, the Ninth District (West Coast) far and away had the most filings for the period at 2,418, down significantly from the 3,188 last year. It was followed the Eleventh Circuit (FL, GA, AL) with 1,288 and the aforementioned Third Circuit (located in Delaware and including NJ and PA) at 1,213. The lowest total of filings, excluding Washington, D.C., came out of the Eighth District (AR, IA, MN, MO, NE, ND, SD) with just 317.

-Brian Shappell, CBA, CICP, NACM staff writer

It comes as no shock but the global slowdown has affected trade. The warnings have been sounded by nearly every global analyst as they have looked at the activity (or lack of it) in some of the major supplier nations.

Part of the challenge to Chinese growth has come from the fact that too many of the nations that usually buy from them are not in very good economic shape. Meanwhile, the U.S. consumer started to go into hibernation in the last month or so, resulting in a 3% drop in imports.

In recent days, there has been a high-profile disaster in Bangladesh – the collapse of a building housing several busy garment factories – that has alerted the casual observers of global trade patterns about conditions in many of these export nations being far less than acceptable. The collapse killed and maimed thousands and, suddenly, the companies that buy these items are backtracking and trying to reassure consumers that they are looking into the situation. It is unlikely that consumers will react all that strongly, but if demand is already stuttering a little, these are the tragedies that can push consumers over the top.

The export side of the equation has also shown some signs of strain. The rate of U.S. exports declined by 1% in March, and that contrasts with an overall rise of 4.3% in exports in all of 2012. There has been no significant change in the factors that have allowed the U.S. to become a more aggressive export nation in the last few years, but global demand is down. This has offset the advantages the U.S. had developed based on currency values and improved manufacturing productivity. The U.S. had been selling pretty consistently to the states in South America, but newfound problems in Brazil and Argentina have reduced their ability to keep buying the US goods.

One other important factor as far as U.S. import activity is the reduced demand for oil. Slower development of the economy has meant that there is less activity and, therefore, less need to buy it. That will be a shorter-term factor, and demand will increase as the economy rebounds. The longer-term trend is that the U.S. is steadily producing more of its own oil, reducing importing from other nations.

Going forward, the biggest disappointment is likely to be that China continues to struggle. The reality is that China is a linchpin in much of the global economic recovery. If China is not selling to the U.S. and Europe, it is not making enough money to buy commodities, raw materials and intermediate goods from nations like Australia, Indonesia and Thailand. If these nations are not selling to China, they don’t have the money to buy from the U.S. That pattern makes what is happening in China very important.

-Armada Corporate Intelligence
 

The European Central Bank (ECB) cut interest rates in the eurosystem by 25 basis points today, from 0.75% to a record low of 0.50%.

Putting it mildly, the emergency rate cut was driven by persistently weak economic performance among the members of the eurosystem. Most notably, unemployment among the 17 member countries that use the euro recently set a record at 12%.

"Weak economic sentiment has extended into spring of this year," said ECP President Mario Draghi after announcing the rate reduction. "The cut in interest rates should contribute to support prospects for a recovery later in the year," he added, leaving the door open for future cuts should they become necessary. "Against this overall background, our monetary policy stance will remain accommodative for as long as needed. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability," said Draghi.

The rate cut was no surprise to markets, but certain details mentioned by Draghi during his press conference raised some eyebrows among analysts. "Draghi confirmed at the press conference that the ECB is open to a negative deposit rate, which would effectively charge banks to deposit funds with the ECB and therefore act as a major incentive to boost lending," said Craig Erlam, market analyst at Alpari. "Obviously, as we’ve seen both in the eurozone and the UK, incentives don’t guarantee anything. However, this would be a bold step from the ECB and has understandably been met with approval in the markets."

However, Erlam remained skeptical that today's rate cut would jump-start a huge turnaround in the European market. "All things considered, the one thing to take from this is that the ECB has done nothing that is going to improve circumstances in the short term," he said. "Basically, it’s business as usual in the eurozone."

- Jacob Barron, CICP, NACM staff writer

 

The National Association of Credit Management’s CMI for April 2013 for April 2013, available by Tuesday afternoon, is expected to report less than optimistic conditions, including more companies feeling the stress of the slow economy and failing to meet payment terms.
 
The release will illustrate that the Credit Managers’ Index (CMI) for April fell to levels not seen in over a year. Though still expected to be in expansion territory (above a level of 50), things are certainly heading in the wrong direction. The real damage to the CMI is expected to come from the unfavorable factors categories. To wit, the most dramatic declines are to be found in dollar amount beyond terms and amount of customer deductions.

“The collapse in dollar amount beyond terms signals that many companies have entered the danger zone,” said NACM Economist Chris Kuehl, PhD. “The sense is that many companies are now on the brink of real trouble, and if the economy continues to stall, there will be some overt business collapse in the next quarter or two.”

There are expected to be some positive notes, including a slight gain and stability, respectively, in the sales and new credit applications categories comprising the favorable factors index.

-NACM

The complete CMI report for April 2013, available by Tuesday afternoon, contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.

It appears officials and legal representatives from a California community recently deemed eligible to file for municipal bankruptcy protection under tough California mandates may have forced previously uninterested creditors back to the negotiating table with its most recent legal victory.

It was reported this week that the city of Stockton and key creditors in its Chapter 9 bankruptcy case, the largest on record from a U.S. city, have told a judge they are willing to resume negotiations that previously failed. Stockton essentially wants concessions from some creditors to which they owe. Similarly, the community of Central Falls, RI also forced stakeholders to yield and take a “haircut” – in that case, public employees and retirees over pensions benefits – after its Chapter 9 began moving successfully through the courts there.

About a month ago, U.S. Bankruptcy Judge Christopher Klein ruled Stockton did meet the threshold to officially enter into municipal bankruptcy. The key pieces to the decision was that Stockton is, in fact, insolvent and that it went through the good-faith negotiation processes mandated by the 2011 California law designed to slow the number of such filings. While the judge didn’t dismiss the bondholders’ problem with creditors taking a haircut while Stockton continued to make full contributions to the state pension program (CALPERS), Klein did determine that an eligibility proceeding wasn’t the right time for such arguments to be made.

Stockton is among many U.S. cities, including several others in California, struggling to get out of crushing debt wrought by factors including expensive union contacts, pension payments and tax base shrinkage caused by the real estate collapse, for which Stockton once boasted the nation’s second-highest foreclosure rate.

-Brian Shappell, CBA, NACM staff writer

The coverage of the tragedy and those responsible for the bombing at the Boston Marathon grabbed the bulk of public attention for the last week, and rightfully so. As life returns to some semblance of normalcy for most of the country, however, the impact of such events will continue to be felt by business for quite some.

NACM Economist Chris Kuehl, PhD predicted that, for business, the incident will change everything from product shipments to relationships with foreign business contacts in regions often associated with terrorist activity. “There will be more screening and security of shipments. A lot more attention is already being paid to our shipping clients,” said Kuehl, who will talk about the impact of crime and terrorism on the global economy at Credit Congress next month.

Such events also speak to the importance of why credit professionals need to be prepared to defend one’s company against fraud attempts. While corporate credit fraud is difficult to tie directly to terrorism, Kuehl said that related groups use many of the same fraud and money laundering techniques as more traditional, U.S.-based crime outfits, and businesses still get hit with the consequences.

- Brian Shappell, CBA, NACM staff writer

For the extended version of this story including additional analysis from Kuehl and Gary Bares, of Verifraud and APG, check out this week's edition of eNews, available late Thursday afternoon.
 

The latest data from the Markit PMI survey tells a bleak story in Europe. That is not much of a shock, but it is nonetheless depressing, as there had been some faint hope that there would be stabilization at least. It is this kind of data that is feeding the anti-austerity troops and encouraging those who want to find some way to accelerate stimulus.

While the press and population have been disillusioned when it comes to its assessment of Francois Holland, it is worth questioning why France is so downbeat and critical. It is obvious that there are problems and reason for concern in France but, compared to many of its neighbors, the French are doing far better.

The country has a debt-to-GDP ratio of 90% -- Italy is at 125%, and the US is a little over 100%. The budget deficit is around 3.7% of GDP. While higher than the target set by the Hollande government, Britain is at 7.4%, and the US exceeds 5.5%. Meanwhile, the unemployment rate is uncomfortably high at 10.6%, but Spain is twice that. This is not to say that all is well in France, still the fifth largest economy in the world, but the ferocious sense of despair doesn’t really seem to be justified.

-Armada Corporate Intelligence

A new study by the United Kingdom-based branch of Dun & Bradstreet suggests updates the European Union Late Payments Directive already are having an impact on payment behavior, at least in Britain.

D&B’s statistics noted that British businesses borrowing on terms paid their bills on aggregate two days faster in 2012 than in the previous year. At an average of 17-days late, British businesses’ tardiness on terms reached a record level in 2011, said D&B. Directive updates in the EU, last done in summer 2011, represent an important legal development designed to ensure the payment of business-to-business invoices is conducted within 60 days, and public authority-to-business invoices within 30 days. In theory, it is a win for suppliers. But there some potentially conflicting fallout exists, as D&B noted:

"This legislation makes it easier for businesses to pursue payment, with debtors being forced to incur interest and pay an administration fee if they fail to pay for goods and services within 60 days for business and 30 days for public authorities.  Whilst it will help protect some businesses [suppliers], the updated Directive presents new risks for companies [customers] struggling to manage their finances and pay on time, due to the potential interest liability risk."

In addition, to assume the directive will drastically improve payment habits within the debt-struggling EU may be a bit of a leap of faith. Though talking about the potential for EU-wide changes to bankruptcy/insolvency laws not the Late Payment Directive, a point made by Thomas Voller, an attorney with Germany-based Voller Rechtsanwälte and member of EuroCollectNet, could be considered. This is the case in part because, as Voller put it, there really isn’t all that much unity, from a continuity sense and legal perspective, in the euro zone.

“There is a tendency in the European Law to try to unify the rules and to find a common applicable law for all European states in some areas,” he told NACM for the international bankruptcy-focused article “Moving Targets” in the May edition of Business Credit (available next week). “Obviously, this is extremely difficult, and it works only in some special fields.”

Whether B2B payment is one of those fields perhaps waits to be seen.

-Brian Shappell, CBA, NACM staff writer

Officials from the European Commission will be attending and exhibiting at FCIB’s Annual International Credit and Risk Management Summit at the Corinthia Hotel in Prague next month and will be hosting an information seminar on Late Payment Directive at the same venue following the conclusion of the FCIB conference on May 14 at the same venue.

The European Union tipped its cap to trade finance this week as it adopted Capital Requirements Directive IV (CRD IV), part of its ongoing implementation of the Basel III capital requirements. What's noteworthy about CRD IV is that it recognizes the inherently low risk associated with short-term trade finance transactions, ultimately allowing banks to hold less capital in reserve for these transactions and making it easier for them to provide export financing.

The EU's adoption of CRD IV came on the same day that the International Chamber of Commerce (ICC) released a report on how rare defaults are in trade finance transactions. Specifically, the report found that short-term trade finance transactions have a microscopic .02% default rate, compared to a 0.6% default rate for one-year, single A-rated corporate loans, a comparatively reliable transaction that defaults nearly thirty times as often as trade finance transactions do.

Among other provisions, CRD IV sets a lower credit conversion factor (CCF) for trade financing than previously suggested iterations of the Basel III reforms. For medium/low risk and medium risk off-balance sheet trade finance instruments, the CCF will be 20% and 50%, respectively. This means that banks won't have to keep the entire value of a trade finance transaction in reserve, thereby making this type of financing cheaper for banks to provide.

Advocates cheered the EU's decision. "Amendments agreed [to] by the EU institutions on capital, leverage and liquidity requirements for trade finance recognize the intrinsically safe nature of these products and their importance to companies, consumers and job creation," said Tod Burwell, president and CEO of BAFT-IFSA, an international trade banking association comprised of the Bankers' Association for Finance and Trade, and the International Financial Services Association. "Through these amendments, the European Union has taken significant steps to alleviate the regulatory burden for trade finance and to ensure it remains available and affordable to importers and exporters."

"This is a positive outcome for the real economy, and we ask the G20 and the Basel Committee to recommend that these Basel III changes be adopted in all member jurisdictions around the world," he added.

- Jacob Barron, CICP, NACM staff writer