Sales Woes Have Negative Impact on Credit Managers' Index for December


Though a number of favorable factors that help comprise the National Association of Credit Management’s Credit Mangers’ Index (CMI), problems with sales ultimately outweighed the positive toward the end of 2012.


The CMI, available Friday afternoon (see link at bottow of story), will show a slight decline for the month largely on disappointing sales figures. NACM economists Chris Kuehl believes this reinforces the notion that business is stalled out in anticipation of what might happen with spending and taxation next year. There was some cautious optimism just one month ago in the CMI, but that optimism has seemingly evaporated, as it seems all but certain that there will be no settlement of lasting value on the “fiscal cliff” issue paralyzing Congress and the Obama Administration.


Other favorable factors statistics were not expected to register the same level of distress, even though a few small declines were expected. Additionally, the unfavorable factor index for December will show only a slight decline. The overall sense is that this month’s decline is due to the tensions existing among (and caused by) federal lawmakers. The inability of Congress and the president to make a deal has already cost significant economic growth, and it is now anticipated that real decline in GDP growth will be the next outcome.


“The reaction captured in this month’s CMI shows a stark lack of confidence as opposed to anything substantial,” said Kuehl. “The overall news for the economy has been pretty good, and so it is with much of the CMI. The factors most connected to mood and confidence are the ones slipping. The whole business community seems to be in state of suspense.”


The complete CMI report for December 2012 contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.



-NACM staff

2013: Surprise Year of the Trade Agreement?


At first blush, a boost in trade agreements would seem unlikely given all the wrangles about fiscal cliffs and austerity plans (see previous blog and eNews entries covering FCIB’s Global Conference from Philadelphia in November). The political will to attack trade issues would seem to be missing, and in developed economies, the subject of trade is always controversial because trade is just what it implies: one has to give something up to get something. However, there are three reasons to believe that trade agreements could potentially become a surprise focus at some point this year, particularly where Europe, Japan and even the United States are concerned.

The first is the increased need for developed economies to find some means by which to grow. Everything else has been tried, and nothing has yet done the trick. The monetary authorities have run out of tricks as interest rates have been at rock-bottom for half a decade, and there is nothing left as far as the bond markets are concerned. For many nations, the solution will have to be increased levels of exports, and that doesn’t seem to happen without the assistance of a trade agreement.

The second reason is the increased need to bolster strategic ties between nations. Geopolitical issues are only getting more complex and must be addressed in some kind of cooperative manner. Given that nations have very different strategic goals, there is a need to find incentives for cooperation. The most consistent weapon first-world economies employ is trade and market access.

The third reason for increased attention to trade agreements is what could be considerable pressure from the business community in first-world economic nations. The financial future of even smaller companies depends on access to overseas markets, and that gets a whole new community engaged in the conversation. Things have changed dramatically in the last few years and now even the very smallest companies have an opportunity to do business outside their borders, making them far more interested in the opportunities that could come with a new trade deal or two.

-Armada Corporate Intelligence
 

Wave of Good News Hits EU Members Near Year-End


Perhaps the most covered story internationally this year has been about the debt struggles throughout the European Union and its impact on the rest of the world. But, for this week anyway, there was a much different and positive tone to coverage about the European sovereigns, especially in Greece and Germany.

Perhaps the most shocking of all came as one of the oft-maligned U.S.-based credit ratings agencies raised the credit profile of one of the euro zone’s most troubled nations. Standard & Poor’s raised Greece’s sovereign credit rating by six steps to a “B-minus” and also placed it in a “stable” outlook category. It’s a massive change for a nation that had been miles below an “investment grade” rating and one that has struggled with a negative outlook by the agency for years. In fact, the rating is the highest Greece has been given since early 2011.

S&P justified the improved rating by noting a deeper commitment and greater transparency therein on the part of EU member nations carried by a Germany that had dragged its feet for some time with calls for increased austerity and related concessions to avert risk. Meanwhile, economic news in Germany turned positive after some recent months of pessimistic attitudes that surprised the fiscal and production powerhouse.  

Germany’s business confidence, which sunk to its lowest level since early 2010 in October, increased for the second time in as many months in December, and did so by more than was forecast. Germany also experienced a noticeable bump in exports and new factory orders, as domestic companies involved in trade have found more opportunities for partnerships outside of an EU it had relied upon so heavily at one time.

-Brian Shappell, CBA, NACM staff writer

Another Port Strike to Threaten U.S. Vendors?


Just days after an eight-day port strike on the West Coast ended, it seems problems brewing on the opposite side of the country are breeding concerns about the possibility of a new, late-year work stoppage...and one that would affect many more markets.

The contract between the International Longshoremen’s Association and the U.S. Maritime Alliance Ltd. is being negotiated to replace one that is expiring on Dec. 29. Getting something in place the last time a port-involved contract dispute came up – also involving the Longshoremen, in the Los Angeles/Long Beach area of California – resulted in some 75% of the largest U.S. port's capabilities being shut down for just over a week. Because of holiday retail-related shipping needs, some estimates noted that upwards of $1 billion in goods per day were blocked during the dispute.

A failure to forge a new deal or some type of extension would almost certainly lead to a lockout or strike in many, if not all of the following ports: Boston, New York/New Jersey, Delaware River, Baltimore, Hampton Roads, Wilmington, Charleston, Savannah, Jacksonville, Port Everglades, Miami, Tampa, Mobile, New Orleans, and Houston, National Retail Federation President/CEO Matthew Shay noted. Shay, who had blasted both sides in the West Coast stalemate, again publicly called on the Obama Administration to intervene because of the lost money potentially at stake.

“A strike of any kind at ports along the East and Gulf Coast could prove devastating for the U.S. economy,” Shay said. “Allowing a strike to occur for even one day could have a negative impact on all of those downstream businesses and employees who rely on the ports. The U.S. economy cannot afford to wait for a strike to occur before we see administration action.”

Granted, with the “fiscal cliff” issue yet unresolved on Capitol Hill and what sounds like a renewed call for new gun control measures in the wake of the mass school shooting tragedy in Connecticut, any intercession appears unlikely in the near-term. That's especially so since the Obama Administration elected not to get involved earlier this month in California.  

-Brian Shappell, CBA, NACM staff writer
 

Obama Signs Bill Establishing PNTR with Russia


President Barack Obama signed H.R. 6156 into law today, officially establishing permanent normal trade relations (PNTR) with Russia.

Much of what the bill does is iterated in its full title, the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law and Accountability Act of 2012. In addition to repealing the Jackson-Vanik amendment, a regularly ignored Cold War regulation that made U.S. preferential tariff rates on Russian products conditional on the country allowing Jews and other minorities to emigrate freely, the bill also normalizes trade relations with Moldova and gives the U.S. the ability to sanction Russian human rights violators according to the terms of the bill's so-called Magnitsky provisions, named after Russian lawyer Sergei Magnitsky who died in Russian prison while investigating allegations of large-scale theft on the part of Russian officials.

Normalizing trade relations with Russia became a priority once Russia officially joined the World Trade Organization (WTO) in August. According to the terms of Russia's WTO accession agreement, the country could increase tariffs on products entering the country from the U.S. until the U.S. normalized trade relations with its fellow WTO member. The presence of the Jackson-Vanik Amendment on U.S. books was considered abnormal, and Russia was, until now, within its rights to discriminate against American products.

President Obama's signature clears the bill's final hurdle and allows U.S. companies to take advantage of the newly expanded market access generated by Russia's WTO membership.

“The United States strongly supported Russia’s accession to the WTO, because it is in the interest of our exporters and the Americans they employ to bring Russia more fully into the global trading system,” said U.S. Trade Representative Ron Kirk. “With the signing of this legislation, American businesses and workers are closer to enjoying the full economic benefits of Russia’s WTO commitments.”

- Jacob Barron, CICP, NACM staff writer

S&P Gets Negative on UK


As draft legislation is honed in the European Union putting limits on what credit ratings agencies can say in analysis and when they can say it in reference to member nations, one of the so-called “Big Three” agencies has placed the United Kingdom into pessimistic outlook territory.

Though Standard & Poor’s affirmed the UK’s “AAA” rating Thursday, the U.S.-based agency revised its long-term ratings outlook to negative from stable and noted a “one in three chance” a ratings downgrade could come in the next two years if fiscal health continues to weaken there.

“We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation,” S&P wrote.

Like most ratings downgrades or threats of them, it’s not being taken kindly, especially in Europe (see this week’s eNews for more on the EU’s draft legislation to limit ratings agencies activity). However, despite fears from governments struck by downgrades and outlook changes, New York University’s Ed Altman, PhD, who will making an encore appearance as a speaker at the (May) 2013 NACM’s Credit Congress Las Vegas, said the impact of such moves has been shown to be muted. He said France, which lost its prized “AAA”-level rating with two of the three big agencies in 2012, is a prime example.

“While the ratings have taken a hit with downgrades, the yields and the spreads have actually decreased in France, which is very hard to explain,” Altman told NACM. “In other words, if you had acted on that information in terms of investment decision, you would have been wrong. France, if anything, has improved in its situation. I’m not saying markets are ignoring the ratings agencies completely, but they don’t seem to be taking them too seriously in regards to investment grade countries.”

He added that market-watchers are aware of the agencies’ somewhat spotty track record from last decade and don’t rely on them solely when making decisions and analysis.

-Brian Shappell, CBA, NACM staff writer
 

Fed Rates Tied to Employment Data for the First Time


Much of the Federal Reserve’s monetary policy public statement on the heels of its Federal Open Market Committee’s (FOMC) meeting Wednesday was reaffirming long-held policies when it came to Treasury securities purchases and interest rates. However, an increasingly talkative Federal Reserve did shock some market-watchers by tying its stance on the federal funds rate to employment growth.



For the first time in the Ben Bernanke’s era as Fed chairman, the FOMC noted it will hold the target range for the federal funds rate at between 0% and 0.25% until the unemployment rate sinks to or below 6.5%. The Fed – which noted continued moderate economic expansion (aside from weather/Sandy-related problems) and concern over risks associated with “strains in global financial markets” – also tied the historically low range’s stay to inflation rates being no more than one-half percentage point above the FOMC’s 2% longer-run goal. All but Jeffrey Lacker voted for the decision.



"Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability," the Fed noted in its uncharacteristically long statment. "The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."



Otherwise, the committee plans stay the course on recent policy initiatives by "continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month...purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month...maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction."



-Brian Shappell, CBA, NACM staff writer

Vitro Bankruptcy Update: Judge Places 10 Mexican Subs into Bankruptcy


In a case with deep implications for U.S.-Mexico trade relations, a U. S. Bankruptcy Court in Dallas has put 10 subsidiaries of Mexican-based glassmaker Vitro SAB into involuntary bankruptcy. Texas-based Bankruptcy Judge Harlin Hale also gave credence to allegations that the subsidiaries schemed to block U.S. collectors from collecting debts. This all comes less than two weeks after an appeals court upheld a summer decision by Hale not to recognize the terms of Vitro's bankrutpcy plan filed in Mexico.



Several months ago, Hale denied enforcement of Vitro’s Chapter 15 reorganization plan approved in a Leon (Mexico) court because he believed Vitro's plan “manifestly contrives” U.S. bankruptcy policy and the interests of American bondholders and trade creditors. Typically, a judge would affirm such plans out of respect to judges in friendly nations and for trade relations. In late November, the U.S. Court of Appeals in New Orleans denied Vitro's appeal of Hale's initial decision. In the aftermath, Vitro threatened that it was considering legal action as a result.



For its part, Vitro responded to the judge's latest decisions and claims of improper actions by subsidiaries by noting it will proceed with its restructuring in Mexico and that its most important assets are minimally impacted, if at all, by Hale's latest ruling.



-Brian Shappell, CBA, NACM staff writer

Canadian Credit Managers Focusing on Greek, American Developments

Canadian members of NACM at Credit Congress in Las Vegas were brimming with confidence regarding their businesses and financial regulators - They just hope nations like Greece and even the United States, their biggest trade partner, can avoid financial pitfalls that will impair the nation's own prospects for an economic rebound.

Canadian representatives said they believe the worst of the worldwide economic recession is long gone. Still, they need to get their firms prepared to take advantage of the rebound after a couple of years of trying to survive more than thrive. One thing that is not a concern, unlike for many domestic firms, is confidence in its banking system. One Canadian credit manager called it the "best in the world."

There are worries, however, among Canadian firms regarding a possible domino effect of financial problems in Europe being started by Greece's well-documented financial woes. If nations like Portugal, Ireland, Italy and Spain continue to deteriorate, it could affect confidence on a global level and, thus, delay the long-awaited economic rebound. Additionally, if the United States heads toward a double-dip recession because of factors such as expected ongoing woes in the commercial real estate sector, Canadian firms will continue to hurt. Remember: more than 80% of the nation's exports end up in the United States.

Brian Shappell, NACM staff writer

BREAKING: FTC Delays "Red Flags" Rules Until June 2010

The U.S. Federal Trade Commission posted this statement on their website near the end of the day on Friday, October 30:

"At the request of Members of Congress, the Federal Trade Commission is delaying enforcement of the “Red Flags” Rule until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC.

The Rule was promulgated under the Fair and Accurate Credit Transactions Act, in which Congress directed the Commission and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.

The Commission previously delayed the enforcement of the Rule for entities under its jurisdiction until November 1, 2009. The Commission staff has continued to provide guidance to entities within its jurisdiction, both through materials posted on the dedicated Red Flags Rule Web site (www.ftc.gov/redflagsrule), and in speeches and participation in seminars, conferences and other training events to numerous groups. The Commission also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form. FTC staff has published numerous general and industry-specific articles, released a video explaining the Rule, and continues to respond to inquiries from the public. To assist further with compliance, FTC staff has worked with a number of trade associations that have chosen to develop model policies or specialized guidance for their members.

On October 30, 2009, the U.S. District Court for the District of Columbia ruled that the FTC may not apply the Red Flags Rule to attorneys. Today’s announcement that the Commission will delay enforcement of the Rule until June 1, 2010, does not affect the separate timeline of that proceeding and any possible appeals. Nor does it affect other federal agencies’ ongoing enforcement for financial institutions and creditors subject to their oversight.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics."

NACM has repeatedly covered the FTC's "Red Flags" Rules in both eNews and in Business Credit magazine. Check back on NACM's blog for any future updates.

Jacob Barron, NACM staff writer

Exports, Business Confidence Spiral Downward


There’s no way to dress it up nicely: a near $7 billion drop in exports between September and October and a trade deficit significantly exceeding $40 billion is abysmal news for the U.S. economy and its small- and medium-sized businesses. It’s yet one more blow to confidence that new numbers show was already faltering thanks largely to partisan gridlock among federal lawmakers.



The U.S. Census Bureau and Bureau of Economic Analysis unveiled unsettling trade statistics this week showing total October exports of $180.5 billion and imports of $222.8 billion, a goods and services deficit of $42.2 billion. The revised deficit figure was $40.3 billion in September. The $6.5 billion drop in goods and additional $300 million decreases in services exported for October represents the largest month-to-month total exporting slide since January 2009.

The news should do little for business confidence, which statistics unveiled by the National Federation of Independent Businesses this week before the new trade numbers could even be factored in illustrate is not far from the historically poorest levels. The NFIB Small Business Optimism Index dropped 5.6 points in November to a level of 87.5. The monthly index has been lower only seven times since its inception in 1986. And this can’t even be blamed on “Super Storm” Sandy – the East Coast states affected worst by the storm and its aftermath were excluded from this month’s numbers to avoid event-based distortions.



NFIB Chief Economist Bill Dunkelberg argued: "Washington does not have the needs of small business in mind; between the looming ‘fiscal cliff,’ the promise of higher healthcare costs and the endless onslaught of new regulations, owners have found themselves in a state of pessimism.”



Key categories “Expect Economy to Improve” and one measuring potential for positive “Earning Trends” each declined in excess of 30% in the latest data.



-Brian Shappell, CBA, NACM staff writer

Economist: Trade Wars, Resource Hoarding Likely Fallout of Downturn


The stress of financial crisis makes nations do a lot of things that distort the normal patterns of the global economy. Trade wars take place as nations try to protect their domestic markets at the same time that they attempt to penetrate other markets with aggressive prices or the establishment of subsidies for their own producers. Within the last few years, there has been another dimension to this protectionism: nations highly developed and less so alike hoarding natural resources.

The hoarding takes the form of buying up commodity production by state agency, locking in commodity production with long-term agreements and stockpiling what that nation can control. A recent series of reports suggests that these actions will become more common and more dangerous in the future.

The three most important threats to the global economy will come from distorted pricing, unreliable supply and uneven distribution of key resources. The hoarding of these commodities will take product off the market, thus driving prices higher regardless of actually supply availability. This will apply to food commodities, metals and oil.

In such events, the supply situation would be upset, as many of the producer nations will not know what the real demand and making price projections will be far less reliable. Only some nations will have the ability to stockpile, and that leaves the poorer states without access to the commodities needed. The expectation is that famine could become widespread, and commodity shortage in the industrial sector will leave many nations without the ability to grow their economies fast enough to contend with their immediate societal needs. Expect the most affected parts of the world to be in Africa and South Asia, where volatility could, in turn, become far more serious.

-Armada Corporate Intelligence
 

Several Key Nations Score Poorly in Corruption Study


An annual report ranking the most and least corrupt nations found most economic powers outside of the top 10 and important emerging economies lagging woefully behind the level considered neutral.  

Denmark, Finland and New Zealand each scored a 90 out of a possible 100 in Transparency International's Corruption Perception Index (CPI), given them a share of the distinction as the least corruption nation on the planet. The trio was followed by Sweden and Singapore to round out the top five.

Among the world’s largest economies, Germany placed 13th (79 rating), Japan 17th (74) and the United States 19th (73). The power trio lagged slightly behind Canada and the Netherlands, which tied for 9th with a CPI score of 84.

On the flip side, two-thirds of the countries ranked by Transparency International fell below the 50 mark that separates those doing well from those performing poorly in metrics tracking sovereign corruption. None of the four BRIC’s nations scored above 50. India ranked a shockingly low 74th (36 score), putting it at an identical level with Greece. Russia, sadly to the surprise of few, fared even worse with an abysmal rating of 28. That level was equal to that of Honduras and Iran.

-Brian Shappell, CBA, NACM staff writer

Senate Approves Russia PNTR Bill in Landslide Vote


On a 92-4 landslide vote, the Senate today approved H.R. 6156, a bill that would establish permanent normal trade relations (PNTR) with Russia. The bill now heads to the President's desk for signature into law.

Specifically, the bill repeals the Jackson-Vanik amendment, a Cold War relic that makes U.S. preferential tariff rates on Russian products conditional on the country allowing Jews and other minorities to emigrate freely. Its presence on U.S. books is considered discriminatory, meaning Russia has, since joining the World Trade Organization (WTO) in August, been within its rights to increase tariffs on products entering the country until the U.S. repealed the amendment.

The bill's passage means that U.S. companies can begin to take advantage of the concessions Russia made in its accession agreement with the WTO, including increased access to several of the nation's fastest-growing markets.

H.R. 6156 also normalizes trade relations with Moldova and imposes sanctions on Russian human rights violators, particularly persons identified as responsible for the detention, abuse or death of Russian human rights lawyer Sergei Magnitsky, who died under mysterious circumstances in a Russian prison in 2009.

Approval of the bill was not always a guarantee in the Senate, as a group of prominent senators sought to expand the so-called Magnitsky provisions to apply to human rights violators from all countries, rather than just those in Russia. The expanded version of the measure was authored by Sen. Ben Cardin (D-MD) who dropped his objections to moving forward with H.R. 6156 while debating the bill last night. "I hope we will make this statutorily global," he said. "We will have that debate at a later date."

- Jacob Barron, CICP, NACM staff writer

Fiscal Cliff Can’t Stymie Auto Sales


Uncertainty is the enemy of business, and the “fiscal cliff” battle between the Obama White House and Congressional Republicans has continued levels of uncertainty well beyond an election that was supposed to set more of a clear path, one way or another, again. Still, one business segment in the United States appears to be immune, at least in recent weeks.

Automotive sales surged at the best clip in more than four years, according to statistics unveiled Tuesday. Sales in the category increased by 15% to a level of just over 1.1 million for November, as consumers ignored the potential for tax increases and a government standoff in deference to replacing aging cars and (non-industrial) trucks. Experts also note that the Hurricane Sandy aftermath helped substantially in providing a regional bump in the Northeast.

The news was positive, somewhat surprising and almost certainly needed/helpful since it came about 24 hours after the Institute for Supply Management reported manufacturing levels at their lowest domestically since summer 2009. The disappointing results, unlike those of auto statistics, were pinned by the Institute almost exclusively on the fiscal cliff budget issues in Washington, D.C. And the index wasn’t just a little off – its troubling 49.5 reading was below the 50 mark that divides expansion from contraction. Even during the recession’s massively underwhelming early recovery days, manufacturing generally tracked above the 50 level.

-Brian Shappell, CBA, NACM staff writer
 

Four Reasons Fourth Quarter Will Disappoint


This is often the quarter that makes or breaks the economy, as this is the moment that the consumer rides to the rescue in an economy that relies on consumption for 80% of the nation’s GDP. The retailers do not refer to the days after Thanksgiving as Black Friday weekend for nothing. There is a pessimistic sense that economic growth will fall by over a point, and the average will be between 1% and 1.5%. Some of the more pessimistic assertions predict the rate will be less than 1% for the quarter. That takes annual growth down an anemic level.

The reasons for all this pessimism vary, but most of the analysts hold that four factors are playing a part. The first of these is the massive storm that hit parts of New York and New Jersey could not have been more badly timed. The economic damage from Sandy was staggering—estimates are running between $80 and $120 billion. The loss of business is not calculable at this point, but the retail community in the region has already reported the slowest period of sales in decades. The loss is made worse by the timing, as this is the portion of the year that matters the most to business. If a silver lining exists, it is that next year the impact will see the reverse, assuming that the money for rebuilding is forthcoming. Traditionally, a disaster like this one is followed by significant economic growth as communities are put back together.

The second reason to worry is that consumers are not responding as aggressively as had been expected earlier in the season. It would appear that the consumer is not yet enthusiastic about going into debt to buy presents. As such, they are reacting more frugally than expected. The Black Friday numbers were decent, but the details showed that consumer snapped up the big discounts and shunned virtually everything else.

The third reason to fear a bad fourth quarter is the too familiar by now "fiscal cliff" fiasco. The business community and the consumer fully expect the economy to be affected negatively by all of this. Even if a last minute solution emerges, the damage has already been done. Most business has slowed in anticipation of a bad start to the next year, and consumers are saving their cash in order to be ready for those tax bites.

The fourth inhibition is global. The U.S. has become increasingly dependent on exports very recently. In the last year, the growth of key foreign economies has stalled, and the U.S. export sector has faltered. Europe is a disaster that shows no signs of abating and even the fast-moving economies have now slowed to a crawl in some cases: China is barely staying above their recession-level growth, while Brazil has tumbled beneath 1%.

-Armada Corporate Intelligence

Brazil Illustrating BRICs' House of Cards?


A couple of years ago, it would have been a near laughable prediction – but the four countries comprising the vaunted bloc of emerging economies known as the BRIC’s (Brazil, Russia, India, China) continue to move in the wrong direction as the new global downturn shows increasing signs of taking hold. And Brazil has the dubious distinction of being the most disappointing of the bunch, per statistics released late this week.


Brazil’s Instituto Brasileiro de Geografia e Estatística unveiled third-quarter statistics that show growth tracking at just about half of its forecast expectations. IBGE noted the following on its website:
Compared to the second quarter of 2012, the GDP (Gross Domestic Product) of the third quarter grew (0.6%) in the seasonally adjusted series.  The greatest highlight was agriculture and livestock farming, which grew 2.5%, followed by the industry (1.1%). Services had no change. In contrast with the third quarter of 2011, the GDP grew 0.9% and, among the economic activities, agriculture and livestock farming (3.6%) and services (1.4%) stood out.  The industry fell 0.9%. In the accumulated in the four quarters ended in September 2012, the growth was of 0.9% in relation to the first four immediately previous quarters, whereas in the accumulated of the first three quarters 2012, the GDP grew 0.7% in relation to the same period in 2011. The GDP in current values reached R$ 1,098.3 billion. 

Notably absent was talk of its natural resources activities, which were expected to provide a boon for the key Latin region economy. The again disappointing performance is starting to reignite concerns raised shortly before the election of Brazilian President Dilma Rousseff. Rousseff, before her more mainstream political career, was known as a pro-labor leftist, leading market-watchers to wonder publicly if she was the right person to guide a period of hot business/economic growth for a nation known to often shoot itself in the foot with poor, inflation-boosting policies. Granted, Rousseff’s more activist roots from decades ago could be a red herring for her detractors, as the European Union massive debt crisis is having an impact on the economic prospects of nearly ever developed economic superpower and very well could have a lot more to do with the deteriorating strength.

-Brian Shappell, CBA, NACM staff writer

Key Indicators Expected to Reverse Negative Trend in November CMI


The latest iteration of the Credit Managers’ Index showed a return to form in some key factors, and jumped almost a full point from where it languished in October. November’s 55.2 reading is still shy of the high points reached back in February and March (55.8 and 56.2, respectively), but is back to the levels seen in August and September. When the reading from October fell to 54.4, there was a sense that it may have been an anomaly, and not as dangerous as it would appear. Now that assessment looks more accurate.

The most important jump was in sales, which climbed from 57.4 to 60.4. It is always encouraging to see the data cresting past 60, and this marks the best sales month since August when the reading was at 62. However, the best improvement in the favorable factors was in dollar collections, as it improved from 54.6 to 61.3. That is an impressive showing by any measure, and suggests that companies are seeing enough improvement in revenues to start catching up on their debt.

There was slightly more volatility in the unfavorable categories, causing a decline in the overall unfavorable index. Every indicator except dollar amount beyond terms, which rose from 48 to 49.9, slipped. Rejections of credit applications fell from 52 to 51.1—not a major reduction, but a signal that there are still applicants coming with less than acceptable ratings. The decline in accounts placed for collection from 53 to 51.2 was a little steeper, but is consistent with the pace set for most of the year and suggests that many companies are still trying to get back into financial shape.

-NACM staff



(Note: For more on the November CMI, check out the weekly NACM eNews release, available late Thursday afternoon, and, for full statistics and analysis, visit www.nacm.org on Friday).

EU Makes Move Against Ratings Agencies


The European Union, continuing to struggle with a debt crisis among many of its members, had a busy if not surprising week of action. In a move that smacked of killing-the-messenger, the EU put significant restrictions on how, what and when the three biggest ratings agencies in the world could publicly assess the sovereign credit ratings of its member nations.

The EU's head-turner came in the official form of a reprimand against the “Big Three” ratings agencies (Moody’s Investors Service, Standard & Poor’s and Fitch Ratings), all of which are based in the United States. The EU is fast-tracking legislation that restricts the timetable in which any of them could release news of sovereign credit ratings of any EU member. The regulations would also empower investors with the right to take legal action against the agencies if financial losses could be tied back to vague measures of “gross negligence” or “malpractice” on the agencies’ part. Some call the move an attempt at improved transparency and competence, while others liken it to censorship.

The three credit ratings agencies were criticized heavily for their performance in ratings of both companies and countries during the run-up to the worst global recession in more than half a century. In addition, European leaders continued criticism as the agencies routinely lowered ratings of and put on warning high-debt nations including all of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain)—all of which since proved to have deep-rooted fiscal issues, mind you—and, more recently, former economic powerhouse France, which saw its prestigious “Aaa” rating downgraded a step by both S&P and Moody’s in 2012. EU officials allege the timing and content of such downgrades unnecessarily exacerbated problems and have made recovery significantly more difficult.

- Brian Shappell, CBA, NACM staff writer

Municipal Bankruptcy Roundup: San Bernardino, Harrisburg, Detroit


In San Bernardino, CA, the City Council has voted on budget measure that would include stopping payments to its pension program at least temporarily. Officials will submit the proposal to a judge who tasked with reviewing its Chapter 9 bankruptcy filing, as well as its eligibility, before a deadline at the end of this week. Entitlements, such as worker pension funding, are the driving force behind the California community’s ongoing debt crisis. It is estimated the city has 143.3 million in unfunded pension obligations at present. Employee and retiree entitlements have become a financial scourge affecting many cities throughout the nation, and it's only expected to escalate as a result of a rapidly aging workforce.

Meanwhile, Harrisburg, PA, talk of a potential municipal bankruptcy could have legs again and may just force its creditors back to the negotiating table. Though the city has been denied Chapter 9 eligibility multiple times because of a quickly-passed state law aimed at temporarily blocking third-level cities in the state from filing for, the entire dynamic could change as said law is just days from expiring. As such, parties involved with an ill-fated trash incinerator project that has become the complete opposite of the financial windfall it was expected to be, could see a city with a bit more of power in the negotiating process without a massive obstacle in its way.

Talk of potential municipal bankruptcy has begun anew again in Detroit, as the city failed to meet certain required benchmarks set by the city to trigger some $10 million in state funding. City officials have acknowledge that it could run out of cash before year’s-end and struggle mightily to meet commitments without the funding. As such, city Mayor David Bing has noted that unpaid furlough days for public employees are likely to begin soon after the 2012 holiday season. The city has been regularly mentioned among municipalities struggling the most with insolvency for several years.

-Brian Shappell, CBA, NACM staff writer

Black Friday Retail Numbers: Good, with Caveats


The first blush was generally positive, but there are lots of caveats. The sales boost that retailers expected over the Thanksgiving weekend took place, but it was not as robust as it was last year. There was some evidence that it began to fizzle before the weekend even ended.

Right now, there are mixed reviews when it comes to the front-loading of the weekend. It appears that people did as they always do—they gobbled up the bargains and the sales. However, this time the powers that be launched these sales early; so people took advantage early. The next three weeks usually represents a lull before the last-minute shoppers, generally the men, give a late boost to the season.

The overall sense is that Black Friday was about what was expected: no sense of a big breakthrough year but no sense of a 2009‐like withdrawal either. People are spending about what they spent last year, and that is neither good nor bad news. The hope that retail would surge enough to push the economy all by itself seems a faint hope at this point, but at least there is no sign of a retreat either. That passes for good news these days.

-Armada Corporate Intelligence  
 

France Loses Top Rating with Another Agency


A strong illustration of just how bad the European debt crisis is getting, France has lost is top, “Aaa” credit rating with Moody’s Investors Services, moving down one notch and maintaining a dubious “negative” outlook.



France, just over a year ago looked at as a potential debt problem-solver along with Germany, has continued to move backward. But Tuesday's downgrade marks the second in 2012 -- Standard & Poor's made a similar move. With it exposed to various risk thanks to long-time debtor nations to the south, primarily Greece, Spain and Italy, the luster has come off of the European Union’s second largest economy.



Euler Hermes Chief Economist Ludovic Subran said it’s going to be a tough road for most of the EU, especially France, back to a place of strong growth, and that is unlikely to occur anytime soon.



“There will be almost no growth in Europe until 2014 [because of] ineffective economic policies,” Subran noted. He added that Europe is at a crossroads and nothing illustrates the precarious position more than France’s growth stoppage. That would only be topped if Germany’s economic growth and manufacturing activity dropped well below already disappointing recent numbers.



Moody’s justified the downgrade on the following rationales:




  1. France's long-term economic growth outlook is negatively affected by multiple structural challenges, including sustained loss of competitiveness and the long-standing rigidities of its labor, goods and service markets.


  2. France's fiscal outlook is uncertain as a result of its deteriorating economic prospects.


  3. The predictability of resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France's exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing.



On the positive side, it is worth noting that France remains in a far less negative position then the previously mentioned neighbors, save Germany, and the predicted rate of business bankruptcy there is tracking below the global average. Euler Hermes statistics indicate France's business insolvency rate changes between 2011 and 2012 is tracking to finish at 3%; the Global Insolvency Index (average) for the same period is 4%. Moreover, Euler Hermes' forecast predicts a 2% between this year and 2013 for France, with a global average likely to post at 3%.



-Brian Shappell, CBA, NACM staff writer

FCIB, Dept. of Commerce Extend Partnership on Trade Finance Guide


As many of you know, FCIB has worked in partnership with the Department of Commerce on many initiatives designed to promote and advance international trade, including the development of the International Credit and Risk Management (ICRM) online course and the International Trade Finance Guide.

Earlier this month at the FCIB Global Conference held in Philadelphia, Carlos Montoulieu, Acting Deputy Assistant Secretary for Services Industries in the International Trade Administration of the U.S. Department of Commerce (DOC), officially released  the 3rd edition of the Trade Finance Guide and announced that FCIB will continue to promote the Guide, including producing print copies of the Guide through the Department’s partnership program.

In 2007, FCIB assisted the Commerce Department in the development of this concise guide, designed to help SMEs quickly learn how to choose the most effective and efficient credit mechanism when selling cross border. Subsequently, in recognition of its contribution to the Guide’s development and promotion, FCIB was awarded a Certificate of Appreciation from the Under Secretary for International Trade.  Since 2007, more than 300,000 copies have been distributed to small and medium size businesses, helping the Guide become a popular export assistance resource.

FCIB is proud to continue to promote this new Guide and FCIB is honored to support the U.S. Department of Commerce’s International Trade Administration.

We are confident that this initiative will generate many new business leads for FCIB and NACM, allowing both organizations to advance their missions to assist businesses strengthen their commercial credit operations.

-Robin Schauseil, CAE, NACM President
 

LaRocca Joins Short list of FCIB Service Award Winners


A touch of humility goes a long way, as does a little self-deprecating humor. John LaRocca, CICP, of Hitachi Data Systems Corp., demonstrates plenty of both. He also demonstrates the kind of leadership and team-player-mentality that made him a perfect fit as the fourth ever recipient of FCIB’s Service Development and Growth Award.



FCIB bestowed the well-earned distinction on a surprised LaRocca at FCIB’s 23rd Annual Global Conference in Philadelphia last week.  LaRocca, when asked about the achievement, quipped, “They must have run out of people to give it to.” That's hardly the case.



LaRocca, who is based in California but works closely with employees at shared services centers like one in Poland as well, has served FCIB and the community of international credit professionals in a number of ways, not the least of which include serving as an expert panelist at repeated industry events like the latest Global Conference, recruiting and involving the next generation of credit professionals to get involved with FCIB. He also was cited for helping FCIB greatly on its website redesign.  Still, LaRocca typically thought it best to deflect and share the attention.



“It’s recognizing participation and involvement, but it’s really recognizing efforts of the Hitachi Data Systems team,” he said a few days after receiving the award. “While I’m being singled out, there are so many people who have contributed.”



Since its inception in 2011, the award has been presented twice annually. It 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, CICP, of Bierens Collection Attorneys – further described it as something that represents a win-win situation: one where the credit professional is “getting in touch with leads, customers while being socially and professionally responsible.”



LaRocca said, after years of involvement in FCIB, he continues to see it as an organization that offers real and “terrific” value for those who get involved:



“It really enables people to come together. It is good to see how others are doing things and take it back to their companies. There’s a terrific value in that.”



Other previous winners of the Service award are Texas-based Luis Noriega, ICCE, of JPMorgan Chase Bank, and Regine Hilgers, CICP, EMEA credit controller based in Germany for Ashland Specialty Ingredients.



-Brian Shappell, CBA, NACM staff writer

Official on U.S. Trade: TPP A Priority, FTAs Unlikely


Carlos Montoulieu, of the U.S. Department of Commerce, confirmed in an interview with NACM that the Trans-Pacific Partnership (TPP) was the overwhelming priority for U.S. officials regarding trade and that there’s “quite a bit of momentum” therein. That also means potential for new, bilateral Free Trade Agreements (FTAs) is scant.



Montoulieu also confirmed that a rumored Trans-Atlantic Agreement between the United States and the European Union would likely get a boost after recommendations—expected before year’s end—are officially released by the High Level Working Group reporting to President Barack Obama. It’s all part of the administration’s continued goal of doubling exports by the end of a five-year period that ends in December 2014, one that was on track after two years but suffered setbacks during a highly partisan election year in 2012.



The purpose of the TPP is to break down trade barriers, especially in the eastern portion of the Asia-Pacific region, where manufacturing prowess and raw materials holdings are becoming more evident. It was estimated at FCIB's Global Conference this week in Philadelphia that nearly half of the $22 trillion in global economic growth between now and 2020 will be in the Asia-Pac region.



With the focus square on multi-lateral deals, the prospects for new, bilateral deals continue to fade. In fact, acting deputy assistant secretary for services industries for Commerce’s International Trade Administration said he was “not aware of any that are high on the list of priorities.”



“Our focus is on the TPP—there has been a lot of momentum there,” Montoulieu told NACM. “It’s actually sometimes easier to do a multi-lateral deal because of the mass behind it. Two nations have to be very dedicated.”



Montoulieu sidestepped questions as to whether bilateral FTA’s were essentially taken off the board because of the difficult and lengthy battle to get the last three—Colombia, Panama and South Korea—through to enactment, as has been widely rumored. The assertion is that a hangover effect is in play.



- Brian Shappell, CBA, NACM staff writer

Debt Crisis in Europe Officially a 'Recession'; What Now?


You can take your pick of things to worry about regarding the European Union. There is the fact that the euro zone has officially entered another recession, as there have now been two consecutive quarters of negative growth. There is also the fact that France is now sliding into the same trough that has engulfed the Spanish and Italians. The French finance minister accuses the world of “France bashing” but the numbers are what concerns people. The Italians are suggesting that public spending has to be slashed at the same time that others assert that Italy can’t handle any more austerity. The German economy has stalled somewhat, the Netherlands is in recession and Finland is leading a semi-movement of nations fed up with paying.

The fate of the euro zone remains unclear though there seems no desire on the part of the Germans to see it go -- that will be a key factor. The most important issue at this stage is growth, and nobody sees a way to stimulate it without loads of outside help. The desire to bring the U.S. to the table has been miniscule up to this point but that is changing—fast.

-Armada Corporate Intelligence
 

Expanded Uniform Commercial Code Service Officially Launches


Several years in the making, the UCC Filing Service went fully live online this week, joining the Mechanic’s Lien and Bond Services under NACM's Secured Transaction Services umbrella.  The service provides the means to mitigate the risk of debtor nonpayment for businesses that sell or finance various types of personal property under UCC’s Article 9, as well as those that lend the labor, materials and other services under state law. The purpose, at its simplest level, is to help creditors become a secured party as an investor, thus putting them in the best possible position to get paid. Remember: secured creditors get paid out 100% (if money is available) before unsecured creditors get one cent, per bankruptcy law. This is increasingly important in areas such as construction as the domestic economic recovery, already sputtering, is threatened by ongoing and new threats, such as gridlock in the U.S. Congress.

Powelson noted that getting involved with UCC filings is not difficult when using a service providing the know-how. He recalled a colleague in Texas who, after years of “me badgering him to protect himself,” made a UCC filing about six month before a major customer filed a massive, $40 million bankruptcy. The colleague’s business was paid nearly 100% of what it was owed, unlike unsecured creditors who received pennies on the dollar.

“That filing cost him $82 and took about one hour to complete,” Powelson said. “With getting paid what he was owed, he joked that the program already paid for itself ‘for about the next 2,200 years.’ I think there are a ton of credit managers who just aren’t sure about the process and perceive it as very cumbersome. The process can be somewhat easy, actually. But sometimes you’ve got to get crushed or really kicked in the teeth and have your boss say, ‘we can’t do this anymore. What could we have done to protect ourselves?’ before you make the move.”

- Brian Shappell, CBA, NACM staff writer

Payment in Middle East Still a Question Mark


For the second time in less than a year at an FCIB multi-day event, the topic of opportunity in the Middle East again was a hot one. And the jury once again noted there is a high level of opportunity to sell products and services that is only going to escalate in the coming years. However, it's not always so easy to get paid on deals that have been agreed upon.

FCIB 23rd Annual Global Conference Speaker Adolf Renaud, ICCE, of Tekelec Global, told attendees that he travels to the Middle East about every six or so weeks because of the amount of money that can be made in the region. Part of the reasoning is the cultural need there to slowly build the relationship and trust, not to mention that there regularly are obstacles to getting paid in any kind of timely fashion.

"If you think you can pick up the phone or send and email to get a payment, it's not going to work," Renaud said. "You have to be over there and spend time in the region. You also need to do exactly what they want...make sure you are specific and meticulous on things like invoices. It's not that they don't want to pay; it has to do with bureaucracy that has been in existence there for 50 years."

Panelist Charles Hallab, of Baker & McKenzie LLP, noted that even with an eye for these factors, payments have been a regular problem in the Middle East. One major mistake is making the assumption, albeit a reasonable one, that a high ranking official might be the most reliable to deal with in the region.

"Nonpayment, late payment, partial payment takes up a log of our time," he noted. "People come to us surprised that they're dealing with a major governmental agency or a prince and can't understand why payment is not forthcoming. Sometimes those are the worst counterparties to deal with in the Middle East. Track record is much more important than title."

-Brian Shappell, CBA, NACM staff writer
 

Commercial Credit Tightening on the Horizon?


FCIB's 23rd Annual Global Conference speaker John Ahearn, of Citibank, warned credit managers Tuesday that the problem with European banking debt is not just an economic issue there or even a trade headache for the United States and other exporting powerhouses; it is also a credit liquidity issue going forward on a dangerous worldwide level.

Ahearn reminded Global attendees just how much of a player European banks are in providing liquidity and capital. For example, Spanish banks are keenly important to funding a lot of businesses operating out of South America, including several emerging markets, and Germany is hooked into many parts of Central America as a credit source of massive prominence.  

Moreover, many banks involved in providing such credit may have to make tough decisions of what areas and markets they want to focus on in the coming years. What that means is the potential for less liquidity or less favorable terms. It also means that businesses of various sizes that are overly dependent on one multi-national bank could find themselves scrambling to replace them should they exit that company's market.

"Banks are going to have to start making strategic decisions: What markets do I want to be in? We believe there are going to be retractions, and this is going to be global," Ahearn said. "Banks are going to pick products they're good at and exit the rest." In essence: make sure you are using multiple banks so that if the bank you do most of your business with gets out of that business, you have other options.

-Brian Shappell, CBA, NACM staff writer
 

Tough Road in Europe Creating New Bankruptcy Boom


The ongoing debt crisis in Europe continues to spread to the point where even the powerful German manufacturing sector is starting to take a hit. FCIB Global Conference Speaker Ludovic Subran, of Euler Hermes, noted this is likely to push bankruptcies much higher in a number of economies there.

Subran noted that projections show low growth, if any, in most European Union member economies over the next two years. As such, it leads to the question: How long can they survive these very low levels of demand? The answer for many companies simply is not very long.

"The rate of destruction of private companies is advancing," the economist told FCIB members and guests. "You have fewer and fewer companies. This includes very important links of the value chain that are disappearing...because some huge companies are going bust." He added there are many companies that rely overwhelmingly on some of these larger companies and intimated that a domino effect looms as a real and present danger.

Subran said that, by year's end, the projected increases in bankruptcies and/or other forms of business insolvencies is skyrocketing in places like Portugal (up 48% between 2011 and end of 2012), Greece and Spain (both 30%) as well as the Netherlands (25%). By contrast the average, per the Global Insolvency Index, is a 4% increase during the same period. Moreover, Subran said another 22% increase is expected in Spain between this year and 2013, with an 11% jump predicted for Italy and 10% for Greece. Granted, there are far fewer nations -- both in Europe and worldwide -- expected to outpace Euler Hermes' projected average insolvency pace through 2013 (3% increase among companies) than during the previous one-year period.

-Brian Shappell, CBA, NACM staff writer

Note: Look for more coverage this week here, through the FCIB Twitter feed (handle: FCIB_Global) and in NACM's eNews (available late Thursday afternoon).

FCIB Global Conference Kicks Off in Philadelphia


FCIB's 23rd Annual Global Conference has kicked off in Philadelphia with the topic of U.S.-based trade high on the list of priority topics. To wit, U.S. Chamber of Commerce Vice President John Murphy discussed recent trade-related victories emanating from the U.S. federal government and what needs to be at the top of the agenda going forward.

Of its big three concerns for 2011 and 2012, two have been accomplished: Congress approved the three Free Trade Agreements and, despite some argument involving the role of and/or "size of government" objections, the charter of the Export-Import Bank of the United States was reauthorized. Murphy noted both were of massive importance, as is a yet-to-be worked out legislative agreement in the U.S. Congress involving restrictions on the books regarding Russia. Russia continues to become a more open economy with its newfound accession into the World Trade Organization; however, long-standing laws on the books technically would allow Russia to discriminate against U.S. businesses until they are removed.

"The U.S. has to pass legislation so American companies can get those benefits; other nations are already benefiting from Russian's ascension," Murphy said. He added that Congress could begin tackling this issue as early as Friday, during the lame-duck session. Murphy also laid out a five-point agenda of what the Obama Administration should, in the eyes of the chamber, focus on in 2013 and beyond to continue helping U.S. businesses take advantage of growth opportunities through exporting:




  1. Trade Promotion Authority – President Barack Obama needs to request this power, which includes the ability to negotiate Free Trade Agreements (FTAs), which every president since Franklin Roosevelt has had. The Chamber expects the president will ask for it in the second term.


  2. Trans-Pacific Partnership – There needs to be more interest in the “Pivot to Asia” area. Nearly half of the $22 trillion in global economic growth between now and 2020 will be in the Asia-Pac region. Of late, the U.S. share of Asian imports actually fell 43% in the last decade. Lack of FTAs are part of the problem, especially in East Asia.


  3. Trans-Atlantic Trade and Investment Pact possibility – U.S-EU commerce leads the world with $1.5 trillion in goods, services and income receipts. The High-Level Working Group sees a potential agreement, reportedly, and could recommend it in a report expected to be out before year's end. Murphy noted the barriers are low already "but volume is so large that even removing low barriers would lead to a economic impact that would be significant.”


  4. New FTAs – Brazil, Egypt, India and Indonesia all represent places of growing opportunity and are places the U.S. should target. There are significant barriers in all of these, however, which doesn't even touch on the point that getting the last three FTAs through (South Korea, Panama, Colombia) and into enactment were near-decade-long tasks.


  5. Multilateral Trade Deals – There's new hope an International Services Agreement could be negotiated. The prospects are actually excellent that negotiations will start next year. In addition, a Trade Facilitation Agreement would speak to reforming international customers' procedures. "Time is money. Where clearance can take days, that imposes a real cost that is often higher than the actual tariffs," said Murphy. A third piece would be to expand product coverage of the Informational Technology Agreement; when the info tech agreement was last negotiated, smartphones/tablets weren't in existence. An update therein is badly needed.



-Brian Shappell, CBA, NACM staff writer.

Visa, MasterCard Settlement Receives Preliminary Approval


Despite the noisy objections of hundreds of retailers, U.S. District Judge John Gleeson granted preliminary approval this afternoon to a proposed settlement between merchants and Visa and MasterCard over interchange fees.



Final approval of the settlement still remains a long way off. The $7.2 billion deal includes a $6 billion payment to merchants and temporary reductions in interchange rates. It also allows merchants the right to pass their processing costs on to their customers via surcharge.



In court, Gleeson referred to the plaintiffs' objections as "overstated."



Stay tuned to NACM's blog and eNews for future updates.



- Jacob Barron, CICP, NACM staff writer

Merchants Make Case against Interchange Settlement


U.S. District Judge John Gleeson might rule today on giving preliminary approval to the proposed antitrust settlement in the case against Visa and MasterCard over interchange, or "swipe," fees.

Opponents to the settlement have rigorously made their case to Gleeson, and to the public, arguing that in its current state, the agreement cements Visa and MasterCard's ability to increase interchange fees at will while denying merchants the right to propose meaningful reforms.

In addition to 10 of the 19 named plaintiffs in the case opposing the settlement, 1,200 small businesses and brands have also joined the fight and urged Gleeson to deny preliminary approval. "The vocal opposition from such a substantial and diverse portion of the merchant community demonstrates just how ineffective and unacceptable this proposed settlement is," said Dave Carpenter, president and CEO of the J.D. Carpenter Companies and chairman of the National Association of Convenience Stores (NACS), which has opposed the settlement from the start. "The proposed settlement is simply a bad deal that further entrenches the anticompetitive practices of the Visa and MasterCard duopoly and denies merchants of their legal right to fight for real changes in court."

Interchange fees are currently set unilaterally by card processors like Visa and MasterCard. While the proposed settlement provides for a $6 billion payment to retailers and allows merchants to pass the fees charged on them to their customers, it does not provide for transparency in the way that the fees themselves are set. Furthermore, the settlement precludes attempts by merchants to bring similar cases at any point in the future.

Preliminary approval of the settlement would mean that supportive plaintiffs could begin to sign up merchants to participate in the deal's benefits. Gleeson has said in court that the threshold for preliminary approval is "meaningfully lower" than it will be for final approval, which could take place months down the road.

- Jacob Barron, CICP, NACM staff writer

September Exports Recover from August Slip


The trade deficit narrowed as exports jumped in September 2012, according to the U.S. Department of Commerce.

Following August, in which exports dropped to the lowest level in six months, September's figures were much more welcome, as exports rose by 3.1% to $187 billion and imports increased only 1.5%, to $228.5 billion. The trade deficit shrunk from $43.8 billion in August, revised, to $41.5 billion in September, marking a 5.1% decrease.

The service sector set a new single month record with $53 billion in exports, breaking the $52.8 billion set in August. Goods exports also set a monthly record, increasing by $5.4 billion to a high of $134 billion in September.

“Although more work remains, today's report shows that we're making historic progress toward achieving President Obama’s goal of doubling our exports by the end of 2014. Total U.S. exports hit a record high in September, as did export levels of both goods and services,” said Acting Commerce Secretary Rebecca Blank, referring to the newly-reelected President Obama's National Export Initiative. “Travel and tourism also continues to be a bright spot, with today’s data showing year-to-date exports 8% ahead of the same period last year. These kinds of increases mean more American jobs—1.2 million jobs were supported by exports between 2009 and 2011.”

Gains in goods exports were driven by increases in industrial supplies and materials ($3.4 billion), foods, feeds and beverages ($1.1 billion) and consumer goods ($0.5 billion). The increase in services exports was chalked up to bumps in travel ($0.2 billion) and other private services ($0.1 billion), which includes business, professional, technical, insurance and financial services.

- Jacob Barron, CICP, NACM staff writer

Election 2012: What Happens Now with the Economy?


After a campaign season that feels like it lasted for decades, the election is over and, essentially, nothing has changed: President Barack Obama won a second term and somewhat decisively; the House of Representatives is still firmly in the hands of the GOP: and the Senate is comfortably in the hands of the Democrats.

Does any of this really matter as far as the economy is concerned? In some respects, the election will have an impact but, in many ways, the vote only affects the big economic issues indirectly. For most of the last year, we have tirelessly tried to point out that presidents may get much of the blame or credit for what is happening in the economy, but their power is very limited. Congress is charged with decisions on taxing and spending.

The number one issue now is the impending fiscal cliff, and the latest election outcome could be either good news or very bad news. Congress now has a little less than two months to figure out what to do with the issue or they will essentially plunge the U.S. back into a recession that could last for a solid year. The betting is that they do something, but the details are very murky.

On the positive side, this is the Congress that will exists next year and that makes it far less of a lame duck than had been expected. If the Senate had gone to the GOP, there may have been a stronger temptation to stall and force the next Congress to deal with the mess. Now, the same people will be in charge next year as are in charge now and they have to find a solution or take the blame.

The negative side is that this is the same Congress that has been incapable of making a decision on this or any other debt/deficit issue, and there is possibility of more acrimony and hostility than before. Democrats are riding a high and may not feel the need to compromise. The GOP is feeling frustrated and may not be willing to back off either. The few moderates left in Congress have almost no power and influence as most of the new players are more ideologically motivated than the people they replaced.

-Armada Corporate Intelligence
 

Panama's Shine Continues to Build with Ratings Upgrade


Panama’s rise in prominence continues to catch the eyes of the business and investment worlds. The latest to take note, and take action, was Moody’s Investment Services.

NACM has noted previously Panama’s commitment to massively expanding its well-known and oft-used canal as well as its continued work to break down inter-governmental trade barriers has helped in positioning the small Latin American nation as increasingly prominent. Moody’s Investment Services listed the same among many reasons it raised the government’s credit rating Monday.

“Panama's economy has grown at an average rate of 7.3% during the past 10 years, the highest rate of growth in Latin America and among the highest in the world. Despite weakening external conditions, Panama continued to show remarkable economic dynamism in the first half of 2012,” Moody’s said. “Though recent growth rates are not sustainable, medium-term growth prospects remain strong thanks to the expansion of the Panama Canal, the Martinelli administration's ambitious infrastructure investment plans and the recent ratification of the free trade agreement by the U.S. Congress.”  Moody’s added that newfound commitment by Panamanian officials toward gold and copper mining also make the nation attractive from a credit and investment point of view.

This comes less than two months on the heels of the Commerce Department noting that, among major export markets, no nation has seen a larger rise in the purchase of U.S. goods in recent years. To wit, the 36.3% increase since 2009 (through September) bested the second faster riser (Turkey) by nearly 8 percentage points.

Key to watch in the coming months and years will be something else that has been already been on expert market-watchers’ radar: whether the government there can manage growth responsibly and avoid creating troubling fiscal imbalances for the medium- and long-term. It’s something that not-too-distant neighbor Brazil, despite its hot status of recent years, has once again seemed to fail in mastering.

-Brian Shappell, CBA, NACM staff writer

Credit Managers' Index for October Falls


The October Credit Managers’ Index, available now at www.nacm.org, reflected the mood of the overall economy, one with some aspects point in a positive direction and others decidely the opposite.

The sense is that a few of the big issues that have been affecting other economic measures are having an impact on the CMI. While it is hard to point explicitly at the “fiscal cliff” as a cause for overall decline, it is quite apparent that the uncertainty affecting business decision-making is having an impact, as some of the future indicators are weaker than expected at this point.

The most distressing category in this month’s survey, and the one that seems to point to the fiscal cliff issue, would be sales. CMI statistics on sales show a decline to the lowest level since the middle of 2011. While disappointing and troublesome, sales remains in expansion terriorty, if nothing else.

"The silver lining in this case would be that a solution to the crisis would likely result in a jump in capital expenditures and investment in general, said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM) regarding the fiscal cliff issue. "The downside is that the powers that be could still allow the unthinkable to occur."

Meanwhile, favorable and unvavorable factors stayed on the encouraging side of the growth/contraction line. However, one particular category of importance showed a significant decrease. Dollar amount beyond terms sported the biggest decline among unfavorable factors. In the past, this has indicated that companies are starting to struggle to meet their obligations, and in the months to come some of the other negatives start to accelerate.


The complete CMI report for October 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.

-NACM Staff

"Amazon of the Middle East" Draws New Investment, Shines Spotlighton Increased Consumption Behavior


In the June 2010 Business Credit article titled “Unveiling Opportunity: Economic Potential Comes with Vagueness, Potential Risk in Islamic Finance,” international credit experts painted a picture in which the Middle East’s younger and more educated population wanted more consumer-based products such as iPods, smartphones and designer-brand clothing.

Feeding into such continuing trends is news this week that a growing online retailer based in Dubai, Souq.com, was selling a significant stake in its business to the South Africa-based media group Naspers. While final details remain sketches, Souq.com officials likened the deal’s scope to the significant Yahoo! acquisition of Maktoob three years ago. Naspers previously bought into ventures in China, Russia and India, as well as part of its global media market expansion.

Souq.com officials purport it is the “largest e-commerce site in the Arab world”-----one that attracts over eight million visits from online shoppers in the Middle East and North Africa regions per month-----and readily acknowledge the widely-held moniker “Amazon of the Middle East.” One look at its website and a user will find striking similarities to Amazon’s e-commerce platform, just one of those aimed at the demographic of those regions.

-Brian Shappell, CBA, NACM staff writer

Storm Impact–Likely to Be Economically Positive in the End


There is something almost perverse about the economic assessment of a natural disaster or major storm, like the one that hit the U.S. Mid-Atlantic and Northeast areas early this week. In the midst of all the painful and tragic destruction, there is the inescapable fact that people and communities rebuild after a disaster – and the richer the community the swifter that reconstruction becomes.

The storm that is ravaging the eastern seaboard will cause billions in damage. The vast majority of the businesses and people affected by this storm have insured their property against just such a development and, in the weeks and months to come, they will be receiving billions in payouts so that they can start to recover. There also will be millions more coming from the federal and state authorities. None of this aid will replace the lost memories and treasures, and it will certainly not help those who will lose loved ones in the catastrophe. However, from an strictly economic point of view, the aid will boost the regional economy.

The most immediate impact will be on industries that have been forced to shut down and lose customers that can’t be replaced. This is the transportation sector mostly – notably, airlines that cancel flights lose that revenue forever. The retailers will likely benefit in the short term as people have been stocking up—at least those that do not suffer damage and power loss. In the longer term the reconstruction process will add billions to the economy and will mean that jobs will be on offer for many months to come. The estimate is that local GDP growth will increase by as much as 1% when all is said and done.

It is the fickle nature of disaster: The damage can’t possibly be underestimated and the silver lining is not on people’s minds as they watch their lives ripped to pieces. Many of those who are being battered right now may not recover fully for years, but the region itself will come out ahead once the recovery process gets underway. At various points in history, it has been a massive tragedy that stimulates growth. For example, the utter destruction of World War II propelled the U.S. economy out a deep recession and stimulated a decade of growth.

-Chris Kuehl, PhD., NACM economist

Eleven Senate Races Key to Party Control, Next Four Years of Economy


There are some close races in the U.S. Senate for most of the political season, which is important because the real economic decision-making is in the hands of Congress. The outcome of these Senate races will determine far more economically than the outcome of the presidential contest.

Below are the races that are still judged as too close to call, even if there is a clear leader in some of them at this point. If the Democrats take five of these races and/or hang on to the ones they have a big lead in (not listed), they will retain control of the Senate. The GOP needs to take eight of these and win the ones they consider safe (also not listed) in order to win back control of Congress’ key chamber:

Arizona—Jeff Flake vs. Richard Carmona.
Connecticut—Chris Murphy vs. Linda McMahon
Indiana—Richard Mourdock vs. Joe Donnelly.
Massachusetts—Scott Brown vs. Elizabeth Warren.
Missouri—Claire McCaskill vs. Todd Akin.
Montana—Denny Rehberg vs. Jon Tester.
Nevada—Dean Heller vs. Shelley Berkley.
North Dakota—Rick Berg vs. Heidi Heitkamp.
Pennsylvania—Bob Casey Jr. vs. Tom Smith.
Virginia—George Allen vs. Tim Kaine.
Wisconsin—Tommy Thompson vs. Tammy Baldwin.

-Chris Kuehl, PhD., NACM economist

(Note: See extended version of this story in FCIB's news blast or the Executive Intelligence Brief, penned by Kuehl’s Armada Corporate Intelligence organization).

Fed Holds the Line on Rates, Asset Purchasing


Citing an economy that continues to grow at a “moderate pace,” the Federal Reserve’s Federal Open Market Committee (FOMC) broke from its economic policy meeting Wednesday with message similar to that of meetings from the recent past.



THE FOMC opted Wednesday to hold rates at a range between 0% and 0.25% and extended the pledge to continue its “highly accommodative stance” on rates through mid-2015. Most of its observations about the U.S. economy echo the sentiments it noted following previous meetings: employment growth has been slow/unemployment remains high, household spending is increasing, real estate is continuing to rebound albeit “from a depressed level.” It did note some inflationary pressure increases, mainly on energy prices, but continued to argue that long-term inflation expectations have remained stable.



The FOMC will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month as well as its program to extend the average maturity of its holdings of Treasury securities. This was a move that gained near-unanimous support among FOMC members with the notable exception of inflation-hawk Jeffrey Lacker.



Brian Shappell, CBA, NACM staff writer

U.S.-Panama FTA to Enter into Force on October 31


The free trade agreement (FTA) pending between the United States and Panama will enter into force on October 31.

Letters exchanged this week between U.S. Trade Representative Ron Kirk and Panamanian Minister of Commerce and Industry Ricardo Quijano established the date on which the FTA would go into effect, after officials in each country completed a review of laws and regulations related to the agreement's implementation.

When the FTA enters into force next week, Panama will immediately reduce or eliminate tariffs on U.S. industrial goods, which currently average 7% but can stretch as high as 81%. Furthermore, over 86% of U.S. exports of consumer and industrial products to Panama will become duty-free immediately, including information technology equipment, construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals and fertilizers.

"This agreement also provides U.S. firms and workers improved access to customers in Panama’s $22 billion services market, including in areas such as financial, telecommunications, computer, express delivery, energy, environmental and professional services," said Kirk. "Panama is one of the fastest growing economies in Latin America, expanding 10.6% in 2011, with forecasts of between 5-8% annual growth through 2017. That adds up to support for more well-paying jobs across the United States."

The FTA is also expected to benefit the U.S. agricultural industry, as U.S. agricultural exports to Panama currently face an average tariff of 15%, with some reaching as high as 260%. Upon entrance into force, the agreement will immediately make nearly half of U.S. exports of agricultural commodities to Panama duty-free, with most remaining tariffs being eliminated over the next 15 years.

- Jacob Barron, CICP, NACM staff writer

Controversial Solar Cells Manufacturer Sees Bankruptcy Plan Confirmed


Though fought on a number of fronts by creditors, the Internal Revenue Service, the Department of Energy and local officials near its home base in California, Solyndra has seen its bankruptcy plan confirmed in the U.S. Bankruptcy Court for the Third Circuit Third District.

U.S. Bankruptcy Court Judge Mary Walrath Wednesday confirmed Solyndra’s plan, one that will see private equity holders getting the overwhelming majority of the remaining assets and the firm itself no longer operating, even as she intimated there almost surely would be an appeal filed by detractors including the federal government. Among other objections, perhaps the most significant, Walrath brushed aside an IRS complaint that groups of investors who bought into the company as it was failing would gain an “unfair” tax benefit of upwards of $341 million. She noted that investors were doing nothing illegal and that such tax benefits were not a significant factor driving the need for bankruptcy proceedings regarding Solyndra, which thoroughly documented its problems remaining competitive against lower-cost Asian competitors and in an oversaturated U.S. solar products market suffering from lessening U.S. consumer demand.  

Solyndra remains under federal investigation for fraud and under the political campaign spotlight because of its ties to key Obama Administration fundraisers. Before going bust, the firm garnered more than $500 million in federal alternative energy grants, the bulk of which will not be repaid to the federal government. The Romney Campaign continues to air the issue, much like the Obama Administration has dogged the Republican candidate over the “Let Detroit Go Bankrupt” Op-Ed regarding automotive insolvencies.

-Brian Shappell, CBA, NACM staff writer
 

Japan in Trouble Over Export Freefall


Japan, already in a tenuous period at best regarding economic growth, received scary even if unsurprising trade numbers to start the week. And it could very well lead to only the second overall annual trade deficit for Japan in decades.

Japan’s trade deficit problems accelerated this month as export levels dropped 14.% in September when compared with September 2011. Like many developed economies, Japan’s growth is heavily tied to export levels and has been affected significantly by the European Union debt crisis and the recent Chinese consumption slowdown. However, complicating matters much more in Asia has been the increasingly heated row between officials China and Japan over control of some islands near both. As such, the pullback of purchasing/importing on the China has been particularly noticeable for companies based in Japan.

Of particular note are statistics for automotive exports from Japan to Brazil, down just a few points short of 50% in September. In fact, U.S. television news channels have regularly run images of anti-Japanese sentiment in China, showing itself in cases of mass vandalism at dealerships of Japanese-made vehicles, among other places. It’s all having a negative impact on all-important business confidence, especially that of manufactures. In fact, it has been reported that polls of manufacturers’ confidence levels have not been as low as the present month at any time since April 2011, the first after Japan was hit by the earthquake/tsunami/nuclear plant leak triple-disaster.

-Brian Shappell, CBA, NACM staff writer

Bernanke Defends Fed Stimulus, Takes Swipe at China on Currency Appreciation


A speech delivered this week in Tokyo found Federal Reserve Chairman Ben Bernanke defending the Fed's most recent attempt to jumpstart the economy, while also taking a thinly-veiled jab at China's currency policy.

The Fed's announcement last month to buy $40 billion worth of bonds per month to boost the U.S. raised a number of eyebrows abroad, as the program could pose some general risks to less-developed economies. "Although the monetary accommodation we are providing is playing a critical role in supporting the U.S. economy, concerns have been raised about the spillover effects of our policies on our trading partners," said Bernanke at the seminar titled "Challenges of the Global Financial System: Risks and Governance under Evolving Globalization," cosponsored by the Bank of Japan and the International Monetary Fund (IMF). "In particular, some critics have argued that the Fed's asset purchases, and accommodative monetary policy more generally, encourage capital flows to emerging market economies."

Specifically, Bernanke said that critics argue that these capital inflows cause undesirable currency appreciation, "leading to asset bubbles or inflation, or economic disruptions as capital inflows quickly give way to outflows."

In his attempt to assuage these concerns, Bernanke noted that the effects of these capital inflows on an emerging market doesn't just depend on the Fed, but also on the monetary policy of the country in question. Though he never referred to China by name, his comments seemed aimed squarely at Asia's largest economy, whose name has become synonymous with currency manipulation in the United States.

"In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth," said Bernanke. "However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation."

"In other words, the perceived advantages of undervaluation and the problem of unwanted capital inflows must be understood as a package—you can't have one without the other," he added.

Read a full copy of Chairman Bernanke's comments here.

- Jacob Barron, CICP, NACM staff writer

Face of U.S. Alternative Energy Bankruptcies Busy in Court Just Days After Solar Dumping Duties Levied


Commerce delighted struggling U.S.-based solar manufacturers – past and present – last week by levying anti-dumping tariffs reported to be between 18% and just under 250% as allegations into illegal government assistance and Chinese “dumping” (selling below cost) of solar power-related products onto the U.S. market. Solyndra, presently under federal investigation for fraud and under the political campaign spotlight because of its ties to the Obama Administration, was the first since to jump on China via lawsuits even though its assets may be liquidated in the near future.

In the last week, Solyndra filed suit against a Chinese manufacturer and its U.S. subsidiary in U.S. District Court in Oakland, CA. The suit asks for a $1.5 billion judgment against Suntech Power Holdings Co., alleging the Chinese-owned manufacturer’s conduct “constitutes an unlawful conspiracy and combination to fix prices at predatory levels and to monopolize,” thus violating the federal Sherman Antitrust Act and California’s Unfair Practices Act.

Meanwhile, Solyndra was due in court before U.S. Bankruptcy Court for the Third Circuit Judge Mary Walrath Wednesday to make arguments to approve its bankruptcy plan. Therein, its assets would be liquidated, though its parent company would reorganize and continue to operate if its plan is confirmed without revision.  Among those urging the judge to not accept the plan are the Internal Revenue Service, the Department of Energy and local officials in California.

-Brian Shappell, CBA, NACM staff writer

Majority of Named Plaintiffs Oppose Visa, MasterCard Interchange Settlement


A slim majority of the named plaintiffs representing merchants in the antitrust lawsuit against Visa and MasterCard over interchange, or "swipe," fees now officially oppose the settlement proposed this summer.

As of last Friday, a grand total of 10 of the 19 plaintiffs in the case announced that they would ask U.S. District Judge John Gleeson to reject the settlement. Affiliated Foods Midwest, Coborn’s, Inc., D’Agostino Supermarkets, Jetro Holdings, Inc. and Jetro Cash & Carry Enterprises, the National Association of Convenience Stores (NACS), NATSO, the National Community Pharmacists Association (NCPA), the National Cooperative Grocers Association (NCGA), the National Grocers Association (NGA) and the National Restaurant Association (NRA) all announced their opposition, hoping to rebuff reports that Visa and MasterCard, along with an ever-dwindling collection of settlement supporters, would ask Gleason to approve the agreement before the end of this week.

These plaintiffs join a growing chorus of other retail and merchant advocates arguing against the settlement, the terms of which allow merchants to pass on their interchange fees to their customers via surcharge. In addition to a recent majority of class plaintiffs, high profile retail groups like the National Retail Federation (NRF) and big-name retailers like Walmart, Target and Lowe's have all indicated their plans to fight the deal.

"The people asking the court to approve the proposed settlement simply do not represent the interests of most merchants, we do," said Hank Armour, president and CEO of NACS."The proposal represents a minority view and must be rejected."

Opponents have repeatedly said that the thing missing from the proposed settlement is a mechanism to allow merchants to challenge how interchange fees are set. Furthermore, the proposal would release Visa and MasterCard from several future antitrust claims and lawsuits, making it harder for merchants to mount any more efforts to fight the interchange process.

Even with preliminary approval, the process of full approval is expected to stretch well into 2013. Should Judge Gleeson side with the opposition, that process could end up taking even longer.

- Jacob Barron, CICP, NACM staff writer

Emerging Market Nations Getting Fed Up With IMF


Financial leaders of the emerging markets are trying to remind new International Monetary Fund (IMF) head Cristine Lagarde and the others within the IMF of promises not kept, particularly an increasing fixation on the European Union and little else.

In the last several months the most vocal critic of the IMF and of the central banks has been the Brazilian Finance Minister Guido Mantega, who had previously called out the U.S. Federal Reserve as well as some in the European Union for causing what he considered a currency war designed to hurt emerging nations’ trade performance. The latest objections launched at the IMF now are centered on the preoccupation with Europe. Mantega forcefully articulated that every IMF meeting essentially is focused on Europe, and there is almost no attention paid to the rest of the world. It is something Lagarde promised would not happen in the run-up to Lagarde’s ascension.

That problem is made even more pressing by the widely held assertion that what is deemed good for the Europeans is generally bad for the rest of the world. The policies of the IMF have all been about growth in the euro zone, and that means putting the euro ahead of every other currency and potentially pursuing exports/trying to block imports to some degree. The overall sense is that Europe counts for far more than the emerging economies. This is not an uncommon assertion, and it is one the IMF has been dogged by for decades. The problem now is that these emerging nations are more influential than they have been in the past, and their patience has run thin. They want to be taken seriously and now have the economic clout to get what they want.

-Chris Kuehl, PhD., NACM economist
 

August Exports Fall to Lowest Level in Six Months


The U.S. Department of Commerce announced this week that total August exports fell $1.9 billion from July down to $181.3 billion, the lowest level in six months. Imports also fell in August, but only by $0.2 billion, resulting in a 4.1% increase in the nation's trade deficit, which widened to $44.2 billion in August from July's revised figure of $42.5 billion.

Responsibility for the 1% decline falls solely on the goods sector, where exports decreased by $2.1 billion between July and August. The service sector saw a $0.2 billion increase in exports, resulting in a monthly all-time record at $52.8 billion. Decreases in the goods sector came primarily from fewer exports of industrial supplies and materials, which fell $1.2 billion in August, and of foods, feeds and beverages, which fell $1.1 billion.

Wider trade deficits are often considered a drag on economic growth as it indicates that U.S. companies are earning less on their overseas sales, while U.S. consumers are spending more money on products manufactured abroad. Nonetheless, exports remain at historically high levels, having grown at an annualized rate of 12.7% over the last 12 months compared to 2009. Total exports over the last year are valued at $2.173 trillion, which is nearly 37.6% above the total level of exports in 2009.

As of August's figures, the top ten buying countries with the largest annualized increases in purchases of U.S. goods, compared to 2009, were Panama (34.9%), Chile (27.8%), Argentina (26.3%), Turkey (26.3%), Russia (25.7%), Hong Kong (25.6%), Peru (25.3%), the United Arab Emirates (21.8%), Ecuador (21.6%) and Venezuela (20.9%).

- Jacob Barron, CICP, NACM staff writer

Banks Optimistic on Small Business Lending


Small business lending is expected to increase according to the most recent survey of bank risk professionals published by the Fair Isaac Corporation (FICO).

Bankers expressed widespread optimism about the small business lending sector, voting by more than a two-to-one margin that the approval rate for small business loans and the total amount of credit extended to small businesses would increase rather than decrease. More than half of all respondents predicted that the overall supply of small business credit would meet demand, although this could simply be a symptom of weak demand rather than a boost in available credit.

Notably, survey respondents were less positive about small businesses' requests for credit. In the first-quarter survey, a large majority of 61.9% of respondents predicted an increase in the amount of credit requested by small business. This figure increased to 69.1% in the second-quarter survey, but fell hard to 56.5% in this quarter's survey. This is still a positive trend, with a majority of participants expecting increased requests for credit, increased approval rates and increased credit in general, but it's not as positive as many had hoped.

Still, the third-quarter survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), didn't leave the banking industry wanting for reasons to be anxious. Concerns in the student loan market were rampant in the survey, with a 61% majority of respondents expecting delinquencies on student loans to increase over the next six months. This marks the fourth consecutive quarter that respondents have predicted a worsening of student loan delinquencies.

Commercial credit risk managers might not have to worry about the threat of student loan defaults, unless they're their own, but the adverse effects on the economy at large from these delinquencies could be potent.

- Jacob Barron, CICP, NACM staff writer