Economist/FCIB Spring Keynote: BRICs Reached Growth Limits, Now What?


The recently named keynote speaker FCIB’s International Credit and Risk Management Summit , to be held May 12-14 in Prague, intimates in a late January interview with NACM that it is unfair and/or misleading to continue looking at member of the BRICs nations (Brazil, Russia, India, China) as a group, since the nations demonstrate more and more how little they have in common.

“You cannot talk about emerging countries, like the BRICs, as a group—It doesn’t work this way anymore,” said Ludovic Subran, chief economist at Euler Hermes. “You’d never talk about the U.S. in a regional context with Canada.”

In addition, the nations also are in a pattern where they are struggling, and failing, to maintain its white hot growth rates of the past few years. At this point, the individual nations that comprise the BRICs may have to reinvent themselves somewhat, as notable by India’ s move to diversify the economy and finish of free trade agreements to bolster opportunity.

“The BRICs are so 2005…They’ve reached their limits in growth rates,” he said of over-emphasis on BRICs members by the international business community. “Now the question is how they are each going to handle it. What’s next?”

-Brian Shappell, CBA, NACM staff writer



(Note: Look for the extended version of this story in the new edition of NACM eNews, available via email and the NACM website late Thursday afternoon. For more information on FCIB’s conference, visit http://www.fcibglobal.com/icrms-2013).




 

Regulations Rough for Small Businesses on Both Sides of U.S.-Canada Border


A recent study conducted by the Canadian Federation of Independent Business (CFIB) found that government regulations were the scourge of small businesses on both sides of the U.S.-Canada border.

According to the CFIB, sister organization to the United States' National Federation of Independent Business (NFIB), Canadian businesses pay significantly more in regulatory compliance costs than their U.S. counterparts on a per employee basis for every size of business except those with at least 100 employees. "Costs are high in both countries, with the smallest firms bearing a disproportionate burden of the per-employee costs," said the report. "In Canada, the smallest firms pay five times as much per employee compared to the biggest firms, while in the U.S small firms pay more than three times as much as their largest counterparts."

A Canadian business with fewer than five employees, including the business owner, pays an average of $5,942 per employee per year in compliance costs, whereas a similarly sized U.S. business pays only $4,084. Per employee regulatory costs get lower and lower as business size increases, with a company in Canada employing more than 100 paying only $1,146 per employee per year in regulatory costs, and a similar U.S. company paying $1,278. For the purposes of the study, the U.S. and Canadian dollars were considered to be at parity.

NFIB Senior Vice President for Public Policy Susan Eckerly said that the report confirms "that regulations cost too much ($198 billion in the United States) and disproportionately burden small firms. The study also points out that 31% of business owners in the U.S. and 23% in Canada said they may not have gone into business if they knew beforehand the regulatory burden they would face," she noted, indicating that bureaucratic red tape not only hamstrings existing businesses, but also prevents the formation of new ones.

The full report is available here.

- Jacob Barron, CICP, NACM staff writer

Economic Growth Takes Hit with Fed's Commerce Dept.


Perhaps the much-maligned status quo wasn’t so bad, from an economic perspective. Slow, lackluster growth levels had been the norm over the last couple of years. However, information handed down by the Commerce Department and Federal Reserve Wednesday finally showed change: in the form troubling backtracking.

The Commerce Department announced that fourth-quarter economic growth declined 0.1%. While the decline barely entered into negative territory, it marked the first time contraction has been officially reported since 2009.  Among the notable reasons: less buying of inventory by businesses and a reduction in exporting activity. Market-watchers had been expected a full percentage point of growth, making the news a bit of a shock.

Hours later, the Fed’s Federal Open Market Committee said that economic growth had “paused,” trying to pin the disappointment on “weather-related disruptions and other transitory factors.” This differed from the broken record messages of moderate economic growth the FOMC trotted out after several consecutive meetings. The committee also noted “somewhat” acceptable inflation levels prone to energy volatility, rather than low ones. The FOMC did note it anticipate both to rebound to the previous ranges in the short term and ongoing.

The Fed’s voting members opted to keep its target for the federal funds rate at a historically low range between 0 and 0.25%, which is expected through 2015 based on previous statements, while also continuing its asset purchases designed to support a faster economic rebound.

-Brian Shappell, CBA, NACM staff writer

Virginia Bill Could Affect Commercial Credit Reports


A bill in the Virginia House of Delegates would require commercial credit reporting agencies to identify their sources of "negative information" when they provided a copy of a report to the subject. This would mean that Virginia buyers would know which of their suppliers shared any of their negative payment history with a commercial credit reporting agency.

The bill, HB 2198, would also require agencies to provide Virginia businesses access to a free annual credit report and would allow the subject of a commercial report to dispute parts of the report within thirty days of receiving theirs, if the company in question believed that their report contained inaccuracies. After receiving the subject's complaint, the commercial credit reporting agency would then have 30 days to either delete the statement, or include a note in the report that signals that the subject of the report considers the particular statement inaccurate.

The bill originated from a series of meetings held between Virginia Delegates and the Virginia business community, wherein business owners complained about a lack of access to credit. Many companies raised their concerns that negative information in their commercial credit reports was making it harder for them to acquire bank and trade financing, so Virginia delegates responded with HB 2198.

Currently the bill has been referred to subcommittee #2 of the Virginia House of Delegates Committee on Commerce and Labor. It has four patrons, all members of the Republican majority in the House of Delegates: Chief Patron Michael Watson (James City/York Counties), Chief Co-Patron Christopher Head (Botetourt/Roanoke Counties), David Ramadan (Loudon/Prince William Counties) and Michael Webert (Culpeper/Fauquier/Rappahannock/Warren Counties).

Stay tuned to NACM's blog and NACM's eNews for updates on this legislation. If you have questions about the bill, please email jakeb@nacm.org or call Jacob Barron at (410)740-5560.

- Jacob Barron, CICP, NACM staff writer

Credit Card Surcharges Allowed Starting Sunday? It Depends


Starting this Sunday, January 27, merchants can begin surcharging their customers for paying with a credit card, but don't tack on that fee just yet.

According to the terms of last year's settlement of a seven-year, $7.25 billion case between Visa and MasterCard and a group of retailers, following the agreement's preliminary approval, Visa and MasterCard had 60 days to amend their no-surcharging policies that they imposed on card accepting companies. The companies did so, and now, as of Sunday, merchants are within their rights to pass on their credit card processing fees to their customers, if they've met a series of conditions.

First of all, any surcharging activity has to wait until at least 30 days after the merchant has alerted both Visa or MasterCard and its acquiring bank of its intention to charge such a fee. Furthermore, the level of the fee that a merchant can charge is capped to the merchant's acceptance cost, but for merchants imposing a brand-wide surcharge, the surcharge is limited to the lesser of their average effective interchange rate or the maximum surcharge cap, established at 4%.

Merchants imposing a product level surcharge, meaning a surcharge for specific types of Visa or MasterCard products, can charge only what it costs to accept that particular product.

The fee must also be disclosed to the customer, at the point of sale and preferably ahead of time too. But regardless, it is vital that merchants speak with their general counsel and with their acquirer about what rights they have before levying any surcharge on their card-using customers.

- Jacob Barron, CICP, NACM staff writer

Brazil Looks to Revisit Possible Trade Deal With EU


Though previous attempts had stalled and even with the European Union’s economic fall from grace that looks unlikely to reverse itself anytime in the near term, Brazil looks to be spearheading effort to bolster trade opportunity.

Brazilian and EU officials met this week and announced an agreement to reboot free trade agreement (FTA) talks between the European bloc and the Mercosur group, which Brazil is a key part of. Mercosur also includes Venezuela, Argentina, Paraguay and recent gainer Uruguay. There are also the possibility that Brazil could negotiate a bilateral deal involving it and the EU, pending on how eventual talks go.

The first of the attempts to establish a Mercosur-EU FTA fell apart just short of a decade ago after five years of talks. Several nations in South America have been criticized for deeply protectionist behavior during various points in recent years. This is especially the case with Argentina and, to a lesser extent, Brazil. The latter, considered the pearl of the South/Latin American economies along with an emerging Mexico, rocked some proverbial trade boats as a slowdown in growth led its officials to place restrictions and/or tariffs on several types of imported products, such as from the U.S. automotive industry.

-Brian Shappell, CBA, NACM staff writer

Always Check for, Eliminate "Pay-if-Paid" Provisions


Credit professionals find “pay-if-paid” clauses within contracts, especially construction industry-based ones, to be quite the headache at times. It’s why keeping a mindful eye on them ahead of time (re: before granting credit to a would-be debtor) is so important.

Greg Powelson, director of NACM Secured Transaction Services (STS), which administers the Mechanic’s Lien and Bond Services division, has long argued that taking “I’ll pay when [or if] I get paid” as an answer to a collections attempt or something in a contract as “crazy” and unacceptable. Powelson reminded creditors of the importance of reviewing terms to find such unacceptable clause inclusions.

“It’s always scary when court decisions against 'pay-if-paid' are revisited, and it always has to be fought. They’re going to use it again [if a debtor succeeds in getting previous court decision overturned],” he said. “Regardless of enforceability, it’s important to review purchase orders and subcontracts and crossing these terms out of the contract. These kinds of things simply must be identified before extending credit.”

It speaks to the difficulty of navigating the mechanic’s lien process without the potential for a costly gap for businesses extending credit. “Because of the unique nature of mechanic’s lien statutes, all sorts of issues come up from time to time that make things more difficult than they have to be,” Powelson said. “Even if something is unenforceable in the end, credit managers could find themselves expending legal fees to support a position already well-supported by case law.”

It's worth noting the "pay-if-paid" fight is on again, right now in the 10th Appellate District Court of Appeals in Ohio (see tomorrow's eNews edition for more on this story at www.nacm.org).

-Brian Shappell, CBA, NACM staff writer

Report: Pension Funding Shortfall Growing in U.S. Cities


Still ignoring media coverage of Chapter 9 (municipal) bankruptcy filings? That may not be a sound strategy given the findings of a new Pew Charitable Trusts study.

Pew’s report, A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care, notes that a group of 61 major U.S. cities comprises a steep, $217 billion gap between what it has promised to public sector workers/retirees and money they actually have set aside to meet such entitlements. The findings are based off of investigating trends mainly from 2010 and 2009 and intimate the problem is likely to continue to grow.

It is a key reason why, despite Chapter 9 being used quite sparingly during the last 80+ years, Business Credit contributor Bruce Nathan, Esq., of Lowenstein Sandler PC, has been talking of the potential trend and its dangers for nearing two years. Deborah Thorne, Esq., of Barnes & Thornburg LLP, also expressed concerns. She predicted there could be significant ramifications for credit departments if a quick escalation in filings happened within the next couple of years.

“I don’t see states and municipalities becoming better funded then they have been,” Thorne said in the latest edition of the magazine. “I see that getting worse. Vendors selling to public entities want to be mindful of how they are going to be paid and how well financed the portion of the municipality is that you are dealing with.”

Pensions and other retiree entitlements for former public sector employees have been an issue in a number of places where Chapter 9 filings have been used as an answer to escalating debt problems that appear to be worsening for municipalities throughout the nation, rather than improving.

-Brian Shappell, CBA, NACM staff writer

Borrowing Back in Vogue


At some point the economy is going to shift its worry from recession to inflation and, by most accounts, that point may be reached later this year. One of the most pressing issues for business is determining when that trend starts to manifest.

One of the factors that will bear scrutiny will be the prices in the service sector. They are already showing some worrisome signs, and it may well be that these will spark inflation more than some of the traditional motivators like commodity prices. In the last few weeks, there have been declines in these prices and, under normal circumstances, that would create some sense of calm when it comes to inflation. That may be a false sense of security given what is happening on the service side—especially given the large role that service plays in the US economy.

The three most aggressive price hikes are showing up in medical services, education and housing. The surge in interest in the housing sector is driving activity in the rental sector, which has propelled some higher rents and higher home prices. This part of the consumer public has been very slow, but it is now starting to speed up.

There are also some reasons to think that the inflation issue will be less dramatic than feared. This assertion is based on the increased payroll tax and the other tax hikes that could take some wind out of the sails of consumers. Reduced spending on restaurants and on other services may restrain some of the price hikes that would have reacted to consumer demand. The commodity impact on inflation will also be watched carefully as it has been a restraint up to this point. The reduction in fuel prices has taken the sting out of service inflation -- Nobody knows how long that will last.

-Armada Corporate Intelligence

Beige Book (Again) Finds Modest Growth; Few Changes Outside of Sandy


The Federal Reserve’s periodical roundup of economic activity in its 12 regions sang a familiar song about conditions over the last six or so weeks: that there is modest to moderate growth, but little that can be considered exceptional, let alone exciting. Perhaps the only notable exception is the bounce-back, primarily in the Philadelphia and New York regions, following Hurricane/“Super Storm” Sandy.

The Beige Book said noticably improved growth was apparent in Sandy-affected as well as regions including Boston, Richmond and Atlanta; though some deterioration existed in St. Louis. Still, it appears better results were expect for the period that included the peak of 2012 holiday season shopping even though sales were “modestly higher” than the previous year. Sales categories were bolstered somewhat, yet again, by steady or stronger auto sales in 10 Fed districts.

In the ever-important manufacturing category, conditions were mixed. It was about an even split between districts growing in manufacturing and a combination of those contracting or remaining mostly unchanged. Boston (bolstered by industries including aerospace and chemicals) and Chicago (auto) appeared to be doing best among the expanding regions. Also, more than half of the regions are optimistic about growth prospects for the rest of 2013, with Philadelphia and Atlanta having a particular surge in confidence.

Long downtrodden residential real estate contacts reported to the Fed of expansion, albeit from low levels, in all regions thanks in no small part to historically low interest rates and home prices. Commercial real estate also was strong, though not as much as residential.

Few regions – New York, Atlanta, Chicago, Dallas – reported a noticeable increase in loan demand in recent weeks. Several, mostly northern districts, reported improvements in asset quality, said Beige Book. There has also, finally, been some loosening in long-high credit standards, according to contacts.

As was the case in much of 2012, agriculture reports to the Fed were mixed, largely on inconsistent and unhelpful weather patterns. Ongoing drought conditions hurt in regions such as Kansas City and Dallas. However, such conditions ceded a bit in parts of Richmond and Atlanta.

Meanwhile, Beige Book noted input prices appeared to hold steady, overall, in the waning days of 2012 into 2013. There were, however, some food and constructing-material costs that rose in a few districts.

-Brian Shappell, CBA, NACM staff writer

EU to Vote This Week on Ratings Agency Restrictions


Following through on a strategy that slaps of the “killing the messenger” adage, European Union member nations are slated to vote this week on restrictions to U.S.-based credit ratings agencies.

EU members are widely expected to approve legislation that restricts the timetable in which any of the three—Moody's Investors Service, Standard & Poor's and Fitch Ratings—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.

The EU has admitted that’s part of the purpose is designed to “reduce the reliance of ratings agencies” and a direct response to downgrades of its member nations – which were, in fact, struggling mightily with debt loads, sometimes dangerously so.

“When nine euro zone countries were downgraded by Standard & Poor's in January 2012, it led markets to speculate on the break-up of the euro zone,” an EU statement release noted. “Agencies would need to explain the key factors underlying their ratings and refrain from making any direct or explicit recommendations on countries' policies. In addition, they would not be able to issue explicit recommendations on member states' policies.”

Many market-watchers have been wary of the move, characterizing as an extreme reaction to a situation. Ed Altman, PhD., the Max L. Heine Professor of Finance at the NYU Stern School of Business, the director of research in credit and debt markets at the NYU Salomon Center for the Study of Financial Institutions and creator of the “Z-Score” bankruptcy predictor, called it a form of censorship. Altman, who will be speaking at the 2013 Credit Congress in Las Vegas, said the move was “an unfortunate precedent” and “totally unnecessary.”

-Brian Shappell, CBA, NACM staff writer

Chinese Trade Levels Rebound to Close 2012


December trade statistics out of China gave the markets reason to celebrate…at least for now.

Chinese-released statistics indicate that exporting increased by slightly more than 14%, noting a bump in demand from the United States and, surprisingly, the beleaguered European Union.  Meanwhile, importing activity rose as well, by 6%, indicating a bump in consumption within China. The latter category’s absence in November was cause of much concern among exporters and market-watchers.  The 2012 overall surplus tracked at $231 billion, with the December surplus exceeding $31 billion.

News of the activity surge was seen as positive among investors – as U.S. markets showed significant gains on Thursday. However, the December rebound has not convinced many experts that China’s stability is here to stay. Because of its dependence on consumption in economies that are far from ticking at total potential in the West, problems can still befall the emerging Asian economic empire.  January’s numbers – without the annual retail bump caused especially in the U.S. by the holiday gift-giving season – could prove quite telling for 2013.

-Brian Shappell, CBA, NACM staff writer

Ratings Agency Gives Favorable Corporate Credit Outlook to U.S.


Fitch Ratings had a busy week, chiming in on several of the world’s most important economies, including the United States. Fitch appeared somewhat rosy on the prospects for U.S. corporate credit. Fitch analysts called conditions “favorable” and officially set the outlook for credit as “stable” even as it noted that the potential impact of international volatility or that the short-term fiscal cliff solution “will do little to address tax and spending uncertainties."

“Modest GDP growth in 2013, healthy operating margins, solid balance sheets and extended maturity profiles provide ample flexibility to face macroeconomic risks abroad and government tax-spending uncertainties…Credit risks remain largely company-specific and are characterized more by business-model risk and operating underperformance rather than leverage. As in 2012, downgrade risks in investment grade will be concentrated among companies that are underperforming peers groups.”

Fitch was most positive on oil and gas (refining) as well as those related to housing among domestic industries. The agency was not, however, very optimistic on China, India or Japan over issues like debt levels.

-Brian Shappell, CBA, NACM staff writer


(Note: For more on Fitch's somewhat negative Asian outlook and what U.S. industries it favors most and least for 2013, check out this week's eNews edition, available late Thursday afternoon at www.nacm.org).

Commercial Bankruptcies Down 22% in 2012


Despite a pair of noteworthy increases near year's end, 2012 closed with commercial bankruptcy filings at their lowest total since the 2008 financial crisis.

According to data provided to the American Bankruptcy Institute (ABI) by Epiq Systems, Inc., there were 57,788 total commercial bankruptcies during calendar year 2012, a 22% drop from the 74,415 filings during the same period in 2011. Chapter 11 filings also fell in 2012, as the 7,760 filings marked a 10% decrease from the 8,658 Chapter 11 filings in 2011.

Filings fell in the consumer world as well, as the 1,127,540 total noncommercial filings during 2012 represented a 14% drop from 2011's noncommercial total of 1,305,243. Combined, there were 1,185,328 total bankruptcy filings for calendar year 2012, which marks another 14% decrease from the 1,379,658 total filings in 2011.

In December 2012 alone, there were 3,739 commercial filings, 33% lower than the 5,569 filings during the same period in 2011. Chapter 11 filings registered a 25% drop with 742 filings in December 2011 compared to only 559 last month.

The per capita filing rate for calendar year 2012, measuring total filings per 1,000 population, decreased to 3.83, down from 4.46 in 2011. States with the highest filing rates through 2012 were Tennessee (6.88), Nevada (6.43), Georgia (6.43), Alabama (5.84) and Utah (5.76).

Read more about what to expect from bankruptcies in 2013 in this week's upcoming edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer

Manufacturers Criticize Congress for Dragging Feet on Tariff Bill


The National Association of Manufacturers (NAM) sharply criticized Congress last week for failing to pass a bill that would've prevented a tax increase on the industry.

Each year, Congress conducts the Miscellaneous Tariff Bill (MTB) process, which cobbles together thousands of tiny pieces of tax and tariff reduction legislation, proposed by lawmakers in both chambers, into one omnibus package. The resulting bill typically lowers the cost of certain manufacturing inputs and some finished products not made or available here in the United States, and usually passes the House of Representatives and the Senate overwhelmingly.

However, the last-minute rush to avert the so-called "fiscal cliff," among other legislative quandaries that frequently left Congress paralyzed, led lawmakers to delay the completion of the MTB process until after 2012 had ended. This means that on January 1, 2013, a number of tax and tariff reductions from the previous year's MTB expired, leaving manufacturers holding the bill.

"Congress’s failure to pass the MTB has resulted in a tax increase on manufacturers in the United States, hurting their global competitiveness and putting jobs at risk," said NAM vice president of international economic affairs Linda Dempsey. "It is currently 20% more expensive to manufacture in the United States compared to our largest trading partners, and the lack of an MTB will only widen that gap."

A new MTB bill has already been drafted by the current Congress. The U.S. Job Creation and Manufacturing Competitiveness Act of 2013 (H.R. 6727) is aimed at addressing NAM's concerns and is expected to eventually pass with bipartisan support. While the content of the bill is uncontroversial, its late arrival, as well as any continued delays, will have a negative effect on the industry.

"Manufacturers of all sizes benefit from these important tariff suspensions to obtain raw materials and inputs that are not available in the United States," said Dempsey. "In failing to enact this important legislation, Congress has increased costs on manufacturers and made it more difficult for manufacturers to maintain and grow production and jobs in the United States."

- Jacob Barron, CICP, NACM staff writer

Sides Still Working to Avert East Ports Disruption


With a new deadline looming three weeks away in a port workers contract dispute, both sides continue to work to avoid what would surely be a costly shutdown.

The contract between the International Longshoremen’s Association and the U.S. Maritime Alliance Ltd. was set to expire during the last week of December. Importantly, the two sides agreed to extend to deadline for a new deal to Jan. 28; workers will continue under the previous pact until that point.  Falling to get something in place the last time a port-involved contract dispute came up – in early December, also involving the Longshoremen, but 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 by late January would almost certainly lead to a lockout or, more likely a strike. This would affect 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 characterized the potential damage from shut a shutdown as “devastating for the U.S. economy.” Shay continues to urge the Obama Administration to get involved in the dispute to thwart any type of shutdown during what is still a tepid growth period at best.

-Brian Shappell, CBA, NACM staff writer

While You Were Out/Busy/Etc...


  • The U.S. Senate and House finally voted in favor of provisions to avert the long-discussed fiscal cliff that pitted Democrats/the Obama Administration and Republicans against each other on issues including taxes, budget spending and debt.

  • The last Credit Managers’ Index (CMI) of 2012 showed a small decline on a drop-off of sales levels. Fiscal cliff uncertainty throughout last month of the year was seen as a significant driver of problems.

  • Proponents of Chapter 9 (municipal bankruptcy) got a boost in the form of a court decision against a pension group in California and a new law in Michigan easing filing requirementes somewhat.

  • A deal was struck to push back contract talks for 30 days to avert a late-December port strike that would have affected more than a dozen of the largest East Coast ports at a time when retail could ill afford delays.

  • India inked a Free Trade Agreement with its fourth largest trading partner, ASEAN (a block of Southeast Asian nations) and remains at work on several bilateral deals.

  • Exporting levels in Asia improved slightly though the steep decline in the European Union amid the debt crisis looms as a massive concern for exporting nations and businesses there and virtually worldwide.

  • Tribune Company finally exited bankruptcy.

  • European Union manufacturing levels declined by levels greater than expected.

  • Retail bankruptcies among British companies continued to rise for the calendar year 2012.

  • Russia launched a registry of companies that declare bankruptcy.

  • U.S. consumer and business confidence continued to slump at year's end.


(Note: For more on several of these stories, check out Thursday’s edition of NACM eNews, available late Thursday afternoon).

-Brian Shappell, CBA, NACM staff writer