SBA Scrutinized Over Rising Loan Subsidies


If there was any federal agency that lawmakers were tripping over themselves to help, it’d be the Small Business Administration (SBA). Its close connection to the nation’s job creators is an easy source of political points for any interested legislator.

Yet, the SBA’s budget for Fiscal Year 2013 has recently received scrutiny for the agency’s skyrocketing cost of loan subsidies. At a hearing in the Senate Committee on Small Business and Entrepreneurship, Ranking Member Olympia Snowe (R-ME) grilled SBA Administrator Karen Mills on her agency’s ability to handle these increases.

“With our country’s economic recovery from the recent recession still lackluster at best, we must ensure that the SBA can be the catalyst small businesses require to get Americans back to work,” said Snowe. “That’s why it is critical the SBA establish a clear plan to reduce the subsidy costs in future years.”

From 2005 to 2009, the SBA’s flagship 7(a) and 504 loan programs operated at zero subsidy, meaning they paid for themselves through fees without any need for taxpayer support. In each of FY 2010 and FY 2011, however, the SBA required $80 million to subsidize these programs due to increased defaults, with subsidies ballooning to $350 million this year. “Looking at historical data, subsidies compared to the overall SBA budget continue to get higher every year, accounting for 12% of the total SBA budget in FY 2011; 26% in FY 2012; finally reaching an alarming 37% in FY 2013,” Snowe added. “This is the paramount issue in the Agency’s FY 2013 budget, and I urge the SBA to take these concerns seriously.”

It wasn’t all bad news for Mills, as Snowe tempered her concerns with effusive praise for Mills’ efforts to reduce the SBA’s administrative costs. “I have said that all Federal agencies, including the Small Business Administration, must tighten their belts during this difficult economic time, and I commend Administrator Mills for her effective management in this regard,” said Snowe. “Agency-wide overhead costs are largely held steady or reduced in this year’s budget request. Karen is demonstrating that the Federal government can and must do more with less, and I appreciate her leadership.”

Jacob Barron, CICP, NACM staff writer

CMI Preview: March Credit Managers' Index to Trend Positive


Statistics to be released tomorrow outlining results of the Credit Managers’ Index (CMI) for March could give credence to an economic recovery that is well-founded and real.

It appears the story of the latest index will be one of improvements in the area of unfavorable factors. This is expected to be particularly noticeable in a pair of subcategories: accounts placed for collection and disputes. Dollar amount of customer deduction is also a category expected to track at better levels than most of the last year, as well.

Perhaps a big part of the positive momentum is that the weeding out process, so to speak, has almost run its course from a business standpoint. NACM Economist Chris Kuehl, PhD, said most of the weakest, poorest run companies have “gone by the wayside,” which has afforded opportunities for the survivors.

“The fact is that, during a boom period, there are many companies surviving and even thriving in spite of themselves,” Kuehl said. “They are not all that well run and succeed mostly because everybody is succeeding in the boom.” He added that it is now the point when the stronger competitors are able to finally reassert themselves and get the pricing they need to succeed long term.

Check back tomorrow at NACM’s website (www.nacm.org) for the full statistics and analysis of this month’s CMI.

Brian Shappell, CBA, NACM staff writer

Are Surprise Japanese Trade Numbers Show of Resilience, or Delaying the Inevitable


Last week, Japan’s finance ministry reported the value of exports at 5.44 trillion yen, and imports coming in just short of 5.41 trillion yen. The trade surplus, which came even as exports dropped by 2.7% and imports rose 9.2% compared to the previous February, surprised market-watchers and drew claims of a resilient Japanese economy that wasn’t given enough credit as it recovers from last year’s natural disasters.

NACM Economist Chris Kuehl, who was among several who noted in March's edition of Business Credit that noted “fear” for the Japanese economic and trade outlooks going forward, admitted “unmistakable progress” has taken place there, However, there reasons for deep concern have not full faded…far from it, actually.

“The endemic issues that have plagued Japan for over two decades have hardly disappeared, and they will continue to be a drag on the economy unless there are some fundamental changes made to chronic structural flaws,” said Kuehl. The biggest threats are as follows:




  • How the nation handles its energy needs, especially with an expected, perhaps unavoidable movement away from nuclear power, at least in the short-term.


  • Can the export sector overcome advantages held by other regional nations’ manufacturing sectors, especially China, and the overly high, even troublesome value of the yen as investors take money out of the euro.


  • One word: debt…the debt-to-GDP ratio presently is tracking at an astonishing 225%.




Brian Shappell, CBA, NACM staff writer
 

Providence, Stockton Appear on Brink of Chapter 9 Bankruptcy


Labor contracts, especially those related to pensions and other entitlements, appear to be a common factor for a couple of U.S. cities that appear on the brink of municipal bankruptcy.

In Providence, RI this week, former state Supreme Court justice and the state-appointed receiver for the Rhode Island’s Central Falls bankruptcy from last summer, deemed a Chapter 9 for the city essentially unavoidable.  To wit, its mayor, Angel Taveres, noted the city could go broke by June without concessions on said contracts/entitlement agreements. Such an argument forced an out-of-court settlement between Central Falls, RI and its retired workers following that municipality's 2011 Chapter 9 filing.

There now is more evidence than ever that Stockton, CA is heading toward municipal bankruptcy, as well. Former U.S. Bankruptcy Court Judge Ralph Mabey has been tasked with the role of mediator in Stockton’s debt negotiations -- mediation now is required per a 2011 California law forcing parties to the table for up to 90 days prior to a Chapter 9 filing being allowed. Stockton officials have become the first to begin going through the new mandate’s mediation process. If filed, Stockton would unseat Jefferson County, AL -- a case recently allowed to continue after being deemed valid by a bankruptcy judge -- as the largest municipal bankruptcy filing in U.S. history.

Brian Shappell, CBA, NACM staff writer

Dodd-Frank Implementation Could Conflict with Basel III, Other International Regulations


A lot has been said about the Dodd-Frank bill, more completely referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. But for a bill that seemed to react directly to an already-devastating financial crisis, few people have described it as “ahead of its time.”

In terms of international regulatory trends, however, that’s exactly what Dodd-Frank has turned out to be, according to Lael Brainard, undersecretary for international affairs at the U.S. Treasury. “By moving forward with this framework we really set the terms for the international debate and were able to move other countries to our framework,” she noted in a recent hearing on the international implications of the Dodd-Frank Act’s implementation. Brainard said that enacting the sweeping reforms included in the bill allowed the U.S. to influence related efforts conducted by authorities in other countries. Had the bill not been enacted when it was, “we would’ve been reacting,” she noted, adding that as implementation progresses, the U.S. is “elevating the world’s standards to our own.”

Conflicts have arisen across borders, however, and at the same hearing, titled “International Harmonization of Wall Street Reform: Orderly Liquidation, Derivatives and the Volcker Rule,” conducted this morning in the Senate Committee on Banking, Housing and Urban Affairs, one notable divergence between U.S. and international regulation could ensnare the world of trade finance.

In his testimony, acting head of the Office of the Comptroller of the Currency (OCC) John Walsh noted that Dodd-Frank requires federal agencies to rely less heavily on credit ratings as a measure of creditworthiness. In fact, it practically requires them not to rely on ratings at all. “Section 939(a) of the Dodd-Frank Act…requires all federal agencies to remove references to credit, and requirements of reliance on, credit ratings from their regulations and to replace them with appropriate alternatives for evaluating creditworthiness,” said Walsh.

On the other hand, the latest edition of the Basel capital requirements, Basel III, makes no such change. “Basel III, in contrast, continues to rely on credit ratings in many areas, making it difficult to implement those provisions domestically.”

Basel III already poses a threat to the world of trade finance by increasing the risk rating of these sorts of transactions, and ultimately making them more expensive for banks. As discussed in an article in the January 2012 edition of Business Credit magazine, the framework could lead banks to abandon the trade finance market altogether. Dodd-Frank’s requirements could increase the severity of this trade finance exodus, especially domestically, by making risk measurements harder to align with both the new U.S. regulations, and Basel III’s international counterparts. “The cumulative implementation will be challenging, particularly for community banks,” he noted.

For more information on global regulatory issues in banking and trade finance, be sure to check out FCIB’s International Credit Executives (I.C.E.) conference, which will feature a keynote presentation by Bart Chilton, commissioner of the U.S. Commodity Futures Trading Commission (CFTC). To find out more, or to register, click here.

Jacob Barron, CICP, NACM staff writer

Commerce Department Lowers Boom on Chinese Solar Produces with Tariff…in the Perhaps the Softest Manner Possible


The Commerce Department and Obama Administration wanted to send a message to China that it knew there was unfair assistance going to those in its solar products manufacturing sector from the government, and thus, imposed a tariff. However, most analysts and domestic solar producers lambasted the tariff as a shockingly weak inroad at punishing Chinese manufacturers with a perceived unfair advantage, at best, and a death knell into insolvency for some badly struggling U.S. producers at worst.

Commerce announced it believed the Chinese government was illegally subsidizing companies producing solar energy products there, and the companies, in turn, have been dumping its products in the United States at artificially low prices, hurting American competitors. It responded with the announcement of a tariff – a widely anticipated move that had market-watchers predicting it could be set at 20%, perhaps 30%. Instead, Commerce emerged Tuesday with an underwhelming range for the tariff: 2.9% to 4.3%. In essence, the move was not greeted as something that would help domestic producers in any significant fashion, all while further antagonizing key trade officials in China who have been engaged in a trade-based rhetoric battle with its U.S. counterparts recently. For their part, Chinese officials proclaimed such a tariff, in the end, would drastically increase prices and decrease availability of solar energy products in the world market.
 



Brian Shappell, NACM staff writer

WAMU Chapter 11: It's All Over But the Repayments


Effective Tuesday, Washington Mutual officially has completed the Chapter 11 bankruptcy restructuring process that spanned nearly three-and-a-half litigious years.

WaMu, which will emerge as a much smaller company under the WMI Holdings moniker, confirmed that its bankruptcy plan approved in on Feb. 23 indeed has gone effective. It is now planning to begin the payment of nearly $7 billion to creditors (or, in many cases, the hedge funds that bought up assets from creditors who went bankruptcy during WaMu’s lengthy restructure).


It was the second largest corporate bankruptcy in U.S. history behind Lehman Brothers which, coincidentally, both went into bankruptcy protection mere weeks before WaMu did the same in September 2008 and emerged from the legal process weeks before it this year.
In February, Judge Mary Walrath approved the Washington Mutual (WaMu) reorganization plan in a case viewed as somewhat of a small victory for lower-level creditors. Even though most will receive pennies on the dollar as a result of the expense of a drawn-out case, it was a shock to many market-watchers that lower level creditors were able to recoup anything. It also found that the court, or at least Walrath, was not as willing to promote secured, senior creditors on the backs of others to the extent many believed would occur.


Marked by their size, drastically different plans and legal wrangling between creditors, attorneys and judges have characterized Lehman Brothers and WaMu as the two most difficult bankruptcy proceedings seen in U.S. court history. If nothing else, the cases may have illustrated the versatility and adaptability of the Chapter 11 system as the key take-away from the proceedings.


"To process the claims and have some sense of order going forward was quite an achievement," said Scott Cargill, Esq. of Counsel at Lowenstein Sandler PC in a late 2011 NACM interview about the implications of the massive reorganization cases. "In 2008, there were a lot of fears about whether our restructuring system could even handle something like this."


Brian Shappell, NACM staff writer

Japanese Manufacturer Moves to Protect Itself from U.S. Creditors


Weeks after garnering the dubious distinction of becoming the largest Japanese manufacturing bankruptcy in the nation’s history, Elpida Memory Inc. is looking to protect its assets from U.S.-based creditors.



Elpida filed this week in the Third Circuit of the U.S. Bankruptcy Court in Delaware seeking Chapter 15 bankruptcy protection. The lesser invoked chapter has been used to protect foreign-based companies with significant U.S. interests while going through the reorganization process. Elpida listed assets and debts in the U.S. filing at about $1 billion.



Elpida’s initial filing in Japan, a rarity, included reported liabilities in the neighborhood of $5 billion, far too great to overcome without restructuring. The computer memory chip manufacturer, once a big part of a booming exporting industry dominated by Japan, has had trouble keeping up with foreign counterparts. The bulk of that competition, driven by lower costs, comes from outfits in South Korea, primarily Samsung.
Also not helping the Elpida and its contemporaries is that its chips are used for computers and laptops, not necessarily the growingly popular smart phones/devices like the iPhone/iPad and similar products. Additionally, the overvalued yen, which has become a bit of a magnate as investors leave the unstable euro, has made it harder for Japanese-based exporters to compete and threatens Japan’s long-held trade strength.



NACM Economist Chris Kuehl noted this case could foreshadow an uptick in business bankruptcy filings from Japanese-based companies. With so many problems challenging the nation’s economic prospects and businesses there, Kuehl intimated the time when it could be safely assumed Japanese-based customers would always pay their creditors may be ending in the near future (see more on this topic in a feature in the latest, March issue of Business Credit Magazine at www.nacm.org).



Brian Shappell, NACM staff writer

Good News from Bellwether Manufacturing Reports


The Federal Reserve reports from New York and Philadelphia showed some very nice progress this month, a positive sign given the makeup of the manufacturing community in this region. The two reports cover some older industrial areas and represent diverse consumer sectors, from high tech and electronics to apparel to steel.



There also is a very large population affected by the reports, as these are some of the most densely populated cities in the nation. If there is progress in this region, it suggests that manufacturers are seeing gains across a wide variety of consumer sectors. Additionally, growth here is likely to make a more significant dent in the unemployment rate than growth in the energy regions such as the Dakotas.



The New York Fed saw its business index rise from 19.53 in February to 20.51 in March. This may not seem like a major jump, but this is the highest level the index has reached since 2010. There was a similar hike in the Philadelphia index as it moved from 10.2 to 12.5, which is the best reading it has seen since 2011. It was only a few months ago that both regions seemed to be slacking off and that had created some alarm.
    
Analysis: One of the most encouraging pieces of this data relates to both the slump in the last few months of last year and the recovery at the start of this one. One factor that led to the decline in the last quarter of 2011 was that these two regions are especially sensitive to the conditions in Europe.
Now that the numbers are looking better, does that mean that Europe is back in the thick of things again?



There has been some improvement in the prospects for the euro zone, but not enough to bolster the manufacturing sector that much. The fact is that companies in this region have broadened their markets considerably in the last year and that is starting to pay off. These companies are selling into Latin America and even to Asia, which makes them less vulnerable to the vagaries of business in Europe.

Chris Kuehl, PhD, NACM economist

Caution Urged on U.S. Recovery at FCIB NY International Profit Summit


Although officials seem eager to trot out headline after headline of positive economic news, the U.S. economy isn’t out of the woods yet. In fact, the U.S. recovery could be derailed by a number of factors, and one economist at yesterday’s FCIB International Profit Summit held in New York described caution about the American economy “well-founded.”

In his keynote address, Byron Shoulton, vice president and international economist with FCIA Management Co., Inc., noted that despite the nation’s “gradual” recovery, a number of factors could erase many of the gains made recently in employment, manufacturing and consumer confidence.

“The U.S. economy has shown glimmers of improvement over the last few months,” said Shoulton. “Job creation appears to be buoyant, with something like 200,000 jobs per month being produced here in the U.S., and growth in manufacturing and even existing home sales are starting to pick up. Car sales, for example, have been higher the last four months than they have been for three years, and even the banks, while they’re concerned with Basel III and the Dodd-Frank requirements, are showing a bit more select willingness to lend.”

(Note: More coverage of FCIB's International Profit Summit available now at the FCIB Twitter page -- under the handle/moniker "FCIB_Global"...as well as Thursday afternoon in the lead story of NACM's eNews at www.nacm.org and in the May edition of Business Credit Magazine, available at the end of the month).



Jacob Barron, CICP, NACM staff writer

Story Update: India Export Ban Overturned After Chinese Protest


China's busy week from a business perspective saw it announcing plans to offer loan specifically in its currency (re: NOT the dollar) exclusively to BRICs members and being hit with a WTO suit emanating from three continents worth of nations unhappy with its trade practice. Perhaps the most interesting matter, however, was China successfully pressur ing India to turn over on a just-introduced product export ban.  

Last week, India shocked markets with an announced ban of cotton and like-fiber exports. Despite textile manufacturers’ requests for assistance, as the commodities market activity has caused massive pricing problems for its domestic business, China’s high consumption demand seems to have won out just days later.

In a bit of a show of power last week, China howled at the new ban to the extent that it was overturned in less than seven days. For its part, Indian officials went into damage control mode, saying their decision to acquiesce on the ban was rooted more in complaints from its own domestic growers over pricing damage than of outside criticism. Most market-watchers aren't seeing it that way.

India’s previous ban on cotton exports in April 2010 caused a notable pricing surge, and a new one appeared to be forming again until Chinese interests essentially put the kybosh on the effort. The chain of events comes at an interesting time since representatives from both governments will take part in a BRICs summit to be held in India in late March. Brazil, Russia as well as faux-BRIC member South Africa will also send officials to the meeting.

(Note: More on various business- and credit-related happenings in China in this week's eNews, available late Thursday afternoon at www.nacm.org).

Brian Shappell, NACM staff writer

Follow Live Coverage from NY Profit Summit NOW on Twitter


NACM's sister organization, FCIB, has kicked off its New York International Profit Summit today with a 2012 global economic overview by Byron Shoulton, of FCIA Management Co. Early topics include Brazilian and Chinese economic prospects and trade opportunities as well as corruption in Russian business dealings.



Follow on-site reports on the happenings at the NY Profit Summit throughout the afternoon at FCIB's Twitter feed through its handle, FCIB_Global. Search it at Twitter.com or click here https://twitter.com/#!/FCIB_Global to view the FCIB page and/or follow it on the social media site. More coverage also available at NACM's Twitter page, which is under NACM_National.

Breaking: Fed Extends Predicted Period of Historically Low Rates


Though the Federal Reserve’s voting membership noted statistics indicate a moderate expansion, an improvement over the slight upticks or stagnation found in 2011, all but one of its members appear somewhat interested in extending the low level of the federal funds rate to a date even further into the future than previously indicated.



As expected Tuesday, the Fed’s Federal Open Market Committee left the target for the federal funds rate untouched at a range between 0% and ¼%. However, the committee now suggests that such a low level likely will be held through late 2014, the latest predicted date for leaving the rate untouched. The Fed intimated the move was tied to subdued inflation levels, aside from oil/gasoline pricing, among other reasoning:



“The committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate…[the committee] anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”



Inflation hawk Jeffrey Lacker was the only FOMC member to publicly oppose opposing holding the target rate so low for the better part of 2 ½ more years. The Fed also announced intentions to continue its policy on purchasing and holding Treasury securities, despite calls from some experts in recent months to abandon the practice.



Brian Shappell, NACM staff writer

Slovakia Election Illustrates What Happens to Austerity Parties


Those pushing deep austerity measures, either the debtors or those funding the bailout in the European Union, for troubled member nations may want to pay particular attention to the recent Slovian election, which shows the kind of impact forced austerity can have on near-future voting patterns.



It was only two years that Robert Fico and the center-left Smer party were driven from office in favor of a center-right coalition that promised some rational responses to problems with Slovak finances. Just a little more than two years later, Smer and Fico are back as the population bristled at the austerity regime that Iveta Radičová promised she would put in place. Fico rode to the biggest vote total that any party in Slovakia has managed since the country’s independence in 1993.

The campaign was easy enough: it was almost pure populism with vague promises of taxing the wealthy as opposed to demanding the austerity measures. It seems to have escaped the notice of the Slovaks that when the wealthy faced that threat a few years ago they simply fled Slovakia and, in their wake, left an even bigger financial crisis.
 
Analysis: This is the object lesson that is being learned in every state that faces a debt crisis. It may sound logical and compelling to address the issue with austerity budgets and deep cuts, but the population invariably rebels and they then put those in power who will reverse the hated austerity plan. It is likely to happen in Greece soon and is happening to some degree in France and Italy. The point is that people will find some way to shift that pain to someone else if they possibly can. The Slovak election of Fico puts the entire plan for a new European treaty in that much more jeopardy.

Chris Kuehl, PhD, NACM Economist
 

Job Growth Remains Solid, But Labor Costs Raise Inflation Threats


U.S. job growth remained solid for the third straight month in February, as U.S. employers added a larger-than-expected 227,000 jobs. Although, the unemployment rate was unchanged at 8.3%, last month’s figures marked the first time since the beginning of last year that payrolls had grown by more than 200,000 for three consecutive months.

Furthermore, the Labor Department revised December’s jobs numbers up to 223,000 from 203,000, and revised January’s numbers up to 284,000 from 243,000.

Although this is good news, NACM Economist Chris Kuehl, PhD noted that there could be a less-talked-about downside to an ongoing trend of employment growth. “There really is no such thing as an unbridled piece of good news in the world of economics,” he said. “There are always trade-offs of one kind or another.”

In this case, the trade off comes with inflation, as one of the factors that accelerates this threat is higher wages and gains in unit labor costs. “There is evidence that unit labor costs are rising—and more rapidly than would be preferred given the state of the overall economy,” said Kuehl. “The rate of core inflation has been holding pretty steady for the past year or so, but that could be challenged soon by the rise in unit labor costs.”

To wit, earlier this week the Labor Department issued productivity and costs statistics for the fourth quarter of 2011, noting that the rate of increase in unit labor costs was 2.8%, more than double the rate that had been registered the month before. “At this point the pace is exceeding the rate of core inflation,” said Kuehl, noting that this won’t make inflation threats any less benign. “As unit labor costs rise, they eat into the profits of companies and affect the core pricing of products across the board,” he added. “This is one of the inflation signals the hawks have been worried about.”

Jacob Barron, CICP, NACM staff writer

SWIFT-ICC Collaborate on "Electronic Letter of Credit"


Two global service providers recently joined forces to create a new way to facilitate trade finance.

SWIFT, a financial messaging provider for institutions in 210 countries, and the banking commission of the International Chamber of Commerce (ICC) collaborated on the Bank Payment Obligation (BPO), a new payment tool that can be used between banks and looks poised to enhance, or possibly replace, commercial and confirmed letters of credit.

The BPO essentially moves all of the manual tasks associated with using a commercial letter of credit and automates them, creating fewer chances for errors throughout the process. It represents an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a specific event has taken place, according to SWIFT-ICC. “This ‘specified event’ is evidenced by a ‘match’ report that has been generated by SWIFT’s Trade Services Utility (TSU), or any equivalent transaction matching application,” they added.

Interoperability between participating banks is made possible by the BPO’s reliance on a standard set of messages, each of which reflects events that have taken place in the physical supply chain, and “create trigger points for the provision of financial supply chain services.” For example, the bank’s systems could generate a message that proposes offering pre-shipment financing based on a trigger point that indicates the confirmed receipt of a purchase order, or a proposition of post-shipment financing based on the receipt of an approved invoice. In either case, the BPO would be used as collateral for the financing.

The reliance of all participating banks on the single messaging standard, called ISO 20022, takes the guesswork out of the documentary credit process. “Open account often fails to provide banks with access to underlying transaction data—impeding their ability to follow relevant events in the physical supply chain,” said SWIFT-ICC. “The BPO and related ISO 20022 messaging standards provide access to relevant data, records and reporting—giving banks the ability to provide risk mitigation, finance and payment services while introducing additional automation and efficiency into the supply chain management process.”

In other words, by matching data according to the messaging standard, banks get a front row seat for the entire supply chain process and can react immediately to the occurrence of certain events. Furthermore, matching the data automatically ultimately removes the subjectivity associated with the manual checking of documents. Instead of having to look at the actual documents and make a judgment call on whether or not they’re correct or in compliance, banks will know instantly if there’s an issue or if the documents are good to go. “There is no subjectivity attached to data matching,” said SWIFT-ICC. “It either matches, or it doesn’t.”

So far SWIFT and ICC have only signed an agreement confirming the framework for the future publication and maintenance of a set of contractual rules that will establish uniformity of practice in the market adoption of the BPO. Stay tuned to NACM’s blog for further developments.

Jacob Barron, CICP, NACM staff writer

Romney Overcomes Auto-Bankruptcy Op-Ed In Ohio, But Just Barely


Super Tuesday has come and gone, and the GOP’s 2012 presidential nomination process is officially…still a mess.

De facto frontrunner Mitt Romney picked up a number of delegates in Tuesday’s primary contests, increasing his already substantial lead over fellow candidates Rick Santorum, Newt Gingrich and Ron Paul. But the nature of Romney’s wins, and the respectable performances of his less establishment-friendly opponents, has left the primary picture as unclear as ever. All in all, Romney won contests in Alaska, Idaho, Massachusetts, Ohio, Vermont and Virginia, while Santorum drew on his considerable stock with Christian evangelicals to win North Dakota, Oklahoma and Tennessee. Gingrich won his home state of Georgia by a more than 20% margin, but didn’t finish higher than third anywhere else.

Romney’s win in Ohio, an important battleground state in the general election, was anything but decisive, and reflected the candidate’s ongoing image problem among American autoworkers. After overcoming his auto bailout criticism to ultimately win the Michigan primary last month, Romney again had to answer for his opposition in Ohio, a state where one in every eight jobs ties back to the auto industry.

In fall 2008, Romney authored a now-infamous op-ed piece in the New York Times titled “Let Detroit Go Bankrupt,” in which he sharply criticized President Barack Obama for using federal tax dollars to reorganize Chrysler and General Motors. The headline was misleading: Romney didn’t really propose letting the two auto titans go bankrupt completely, but instead suggested that the reorganization hinge on private financing rather than taxpayer money.

However, the Obama Administration has argued that private financing was nearly non-existent when the auto bailout was proposed and implemented, due to the then-ongoing credit crisis. And regardless of where the money came from, the auto bailout was largely successful. The entire effort breathed life into a once-moribund domestic auto industry, and became popular with investors and workers alike, especially those in states like Michigan and Ohio.

Romney’s opposition to the bailout ultimately cost him in Ohio, where he won on Tuesday by a mere percentage point, nearly losing to Santorum. Moreover, even if he does win the nomination, Romney’s middling performance practically guarantees that his “Let Detroit Go Bankrupt” sound bite will come back to haunt him in the auto-industry states in the general election.

Jacob Barron, CICP, NACM staff writer

Brazil Growth Improves, Central Bank Seeks to Cool Inflation


Brazil’s overall GDP growth recovered a bit in the fourth quarter of 2011. After falling by 0.1% in the third quarter, the Brazilian economy grew by 0.3% to close out last year, bringing the real GDP growth for all of 2011 to 2.7%.

At first glance, this would appear to be good news. However, compared to 2010, which saw Brazilian GDP hit a blistering 7.5%, the 2.7% annual GDP figure begins to look far less impressive.

Due to the disappointing GDP growth, among many other reasons, Brazil’s efforts to contain further appreciation of the real are expected to continue for the foreseeable future. According to Fitch Ratings, exporters and investors can expect the government to remain focused on stimulating domestic growth throughout 2012 as demand for Brazilian exports remains under pressure.

Capital inflows have boosted the value of the real to the point where Brazil now has trouble competing globally, and all at a time when slow external demand growth has already weakened trade and current account balances. Fitch noted that as exports, industrial output and GDP growth slows, the Brazilian Central Bank (BCB) could continue to ease monetary policy by cutting the benchmark interest rate further.

But the BCB, and the country’s Ministry of Finance have already begun to take actions that seek to curb capital inflows into Brazil in an effort to cool the real’s appreciation. Last week, the Ministry of Finance announced that it would extend the 6% transaction tax on foreign loans to maturities of three years, up from two years, while the BCB imposed tougher limits on certain types of trade financing. Specifically, the BCB’s latest regulation exempted export prepayment loans from taxes for maturities shorter than 360 days. Transactions that last longer will be forced to pay the previously mentioned 6% transaction tax, and only importers will be allowed to take out these trade financing transactions.

Despite the continued efforts of the BCB to slow down the real, which has appreciated by 10% since the start of 2012, Fitch expects Brazilian growth to improve to 3.2% this year.

Jacob Barron, CICP, NACM staff writer
 

Municipal Bankruptcy Roundup: Stockton, Jefferson County


Though Providence has been front of mind as the city perhaps most likely to file for Chapter 9 municipal bankruptcy protection, it appears Stockton, CA might threaten to beat the Rhode Island city to the punch. Though California voted in a new law last year to slow municipal bankruptcy filings amid growing reports of widespread financial problems within many local governments, Stockton officials have become the first to begin going through the new mandate’s mediation process. Reportedly, officials there and representatives are trying to set up meetings/negotiations with bondholders, creditors and employee unions to discuss options to help the debt-addled community.

Meanwhile, in Jefferson County, AL, creditors tied to its what is to date the largest Chapter 9 filing ever in the United States, a suffered a setback in derailing the proceedings. U.S. Bankruptcy Court Judge Thomas Bennett released a ruling allowing the county to continue operating under bankruptcy protection and the case to proceed despite objections from creditors over what state law actually allows. Jefferson County has been reeling financially from a botched sewer retrofit venture that has left the county with upwards of $4 billion in debt.

Brian Shappell, NACM staff writer
 

Stats Say Indian Exports Rising; But Trade Ban Grabs Headlines


India continued to improve upon its exporting activity of late with a double-digit gain in activity in January. However, India’s trade deficit also demonstrated it has a long way to go, all while shutting down trade in one key product area for the second time since Spring 2010.



Recently unveiled statistics indicate India’s export activity grew by 10.1% in January, triple the percentage rate of just two months ago. While a marked improvement, the exporting activity still remains well below the pacing found during the middle and late portions of the year, typically. And, despites its status as one of the top four emerging economic powerhouses, it still runs on near $15 billion trade deficit. Some would categorize India as a land of contradiction despite signs of massive potential. But the European Union debt crisis and, to a lesser extent, U.S. consumer tentativeness have left gaps in demand for Indian-based outfits.



But the big headline coming out of India from a trade perspective this week is the nation’s ban of cotton and like fiber exports. Textile manufacturers based in India have been begging for assistance as the commodities market activity has caused pricing problems for its domestic business. Part of that is the massive consumption of cotton from buyers based in China.
India’s last ban on cotton exports in April 2010 caused a pricing surge and, while it’s too early to safely predict the mid-term and long-term impacts of the ban, plenty of that trademark volatility in the commodity’s trading activity was on full display in the hours after the announcement.



(Note: India will be front-and-center at two FCIB educational opportunities this spring. It will be featured during the “Doing Business in the BRICs” session of the 2012 International Credit Executives [I.C.E.] Conference in Chicago May 2-4 as well as in the two-day webinar, “Doing Business in India,” starting April 24. For more information or to register, visit www.fcibglobal.com).

Brian Shappell, NACM staff writer

Massachusetts Data Security Regulations on Vendor Contracts Now In Effect


A new data security regulation in Massachusetts went into effect on March 1. And any business in the U.S. that stores or maintains “personal information” about one of the bay state’s residents must comply.

The commonwealth’s new law broadly defines “personal information” as a person’s name in combination with any one or more of the following: social security number, driver’s license number, state-issued identification card, financial account number and credit or debit card number. To comply with the regulations, businesses must develop, implement, maintain and monitor a comprehensive, written information security program, and, secondly, establish and maintain a security system, which, among other things, encrypts personal information stored on portable devices or transmitted wirelessly or on public networks.

If that sounds stringent, that’s because it is. While 44 states have enacted data security breach notification laws in recent years, the Massachusetts regulations are among the nation’s most comprehensive and restrictive because it’s geared more toward preventing data breaches than it is toward notifying victims of a breach after it’s already occurred.

Moreover, businesses required to comply with the Massachusetts data security regulations that also engage a third party outside vendor to store, process, transmit or destroy data containing personal information of a Massachusetts resident must also have amended their contracts with such vendors in order to require them to comply with these regulations as well and thoroughly have investigated any such vendors in order to determine whether their privacy practices are adequate.

The now in-effect rule could signal a shift in state legislation away from dictating what companies must do in the wake of a data breach, and toward dictating what companies must do in order to prevent a data breach in the first place. No single standards exist for nationwide coverage, since data security and breach notification laws differ from state to state, but companies should, at the very least, collect only as much information from their customers as is necessary and implement solid, comprehensive procedures governing data security and breach notifications. Furthermore, companies that engage third parties that provide these services should carefully investigate their potential partner before agreeing to pay for such services.

Stay tuned to NACM’s eNews and blog for future updates on the nation’s developing body of data security and breach notification law.

Jacob Barron, CICP, NACM staff writer
 

Just Hours Left for Credit Congress Early-Bird Registration


Those planning to attend Credit Congress in Grapevine, TX – and do so at a discounted price – have until Friday (March 2) to register for the event.

This year, NACM will build off of last year’s success executive exchange sessions and host an array of top-level speakers in their fields. This includes Ed Altman, PhD (innovator of the Altman Z-Score bankruptcy preditor); Camilo Gomez, PhD (renowned metrics expert); Wanda Borges and Bruce Nathan (two experienced, widely popular bankruptcy attorneys), as well as Chris Kuehl and Dan North (outspoken economist). There will also be all the events NACM members come to expect, like the Silent Auction and the Closing Night Party, again featuring high-energy country superstars the LoCash Cowboys.

For more information and/or to register now, visit http://creditcongress.nacm.org/register-2012.html.

Fed Beige Book: Expansion Continues in Moderation


Contacts in all 12 Federal Reserve Districts reported that the last six-week tracking period of the Beige Book economic roundup has brought continued growth with, stop us if you’ve heard this many times before, manufacturing leading the charge.

Manufacturing’s mid-winter increase was characterized as “steady” through the nation, with new orders, shipments and production up in most of the districts. Auto-related industries and those tied to capital spending, as previously noted in Business Credit and NACM eNews, continued to thrive.

Agriculture and real estate were more mixed bags, pending on the location – but, for the latter, anything above across-the-board stagnation for the reeling construction industry reads like a win.
Business credit quality and demand were stable or showed a slight uptick in districts including Cleveland, Richmond, San Francisco in Atlanta. There was particular middle-market strength in Dallas in that regard, and there was also a bump in large corporate lending in Chicago.

For overall growth, across all sectors, Philadelphia and Atlanta demonstrated the best six-week showing, according to Beige Book. The east-coast duo was followed by auto-friendly districts of Cleveland and Chicago as well as Kansas City, Dallas, and San Francisco.

The good news was well-timed for a long-battered Fed Chairman Ben Bernanke. The chairman was due on Capitol Hill Thursday to present the Semi-annual Monetary Policy report to the House Financial Services Committee, where he has faced sharp criticism before election-mode lawmakers in recent months.

Brian Shappell, NACM staff writer