The Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) for May, now available at www.nacm.org, arrived bearing very positive news: an index level not seen since last summer. And the improvement becomes even more convincing upon further review of the data, in part because of better consumer confidence numbers and the general enthusiasm greeting the latest housing data.
Favorable factors across the board rebounded to their best levels of this calendar year, with the all-important sales category posting its best performance in more than 12 months. Additionally, not since before the recession has the number for amount of credit extended been so high.
“If the willingness to extend credit is surging at this pace, there will be some lofty expectations for the months to come,” said NACM Economist Chris Kuehl, PhD. “There would be good reason to question data this optimistic except for the good news percolating in the ranks of the consumer sector, and it is reasonable to assume that this CMI number reflects some of that.”
The data from the unfavorable factors is also encouraging and further reinforces the notion that a real rebound is underway. The jump was not quite as spectacular as with the favorable factors, but if the past is prologue there will likely be an even bigger response in next month’s data. Dollar amount beyond terms made the most solid gain, jumping to its highest level seen in well over two years. Said Kuehl, “Creditors are clearly getting caught up in a variety of economic sectors.” He added that the latest CMI, in long-overdue fashion, may just be foreshadowing even better days ahead, a pleasant shift from the usual warnings and caveats that have following news of positive momentum in the recent past.
The complete CMI report for May 2013 contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.
Credit conditions for U.S. small businesses made a solid leap in the first quarter of the year despite the threat of heavier tax burdens and sequestration spending cuts, according to a study unveiled this month by Experian and Moody’s Analytics. But that’s not to say such an improvement should be relied upon during the middle of this year.
The latest Experian/Moody's Analytics Small Business Credit Index climbed 5.7 points in Q12013 to 109, up from 104.3 in the previous quarter. Much of the improvement, characterized as a “welcome surprise” to the authors, was driven by lower delinquency rates and stronger consumer spending. However, even analysts involved in the study themselves warned to not get overly exuberant…not just yet anyway.
“Conditions are improving, but only slowly and unevenly across the country,” said Moody’s Analytics Chief Economist Mark Zandi. “Much further progress this year will be difficult given the likely fallout from the sizable tax increases and government spending cuts, but conditions are expected to improve next year once these fiscal headwinds begin to fade.”
In addition, the study illustrated that improvements in credit quality are tied less to real improvement in U.S. businesses and more toward managing, “keeping a tight lid on,” labor costs. Within the statistics, increases in delinquent balances were particularly noticeable among the smallest companies, those with fewer than five employees, and the eastern portion of the country appears to be struggling more than other regions because of the weak employment situation, lack of import demand in the European Union and the federal cuts emanating out of Washington, DC.
Experian and Moody’s added that the full effect of federal spending cuts likely wasn’t felt fully in the Q1 statistics, and that it could come during the next two quarters.
As talk of the sequester on the part of the federal government crept into the national dialogue, so did concern for potentially heightened insolvency risk for companies dependent on ongoing government spending. Perhaps no industry had more reason for worry earlier this year than mid-market defense contractors. In fact, the sector made the short list of returning Credit Congress speaker Ed Altman, PhD, when in January he informally outlined those facing a tough path to continued solvency health. During an interview with NACM, he noted that nothing has shaken his pessimistic outlook in said area.
The budget showdown in Washington and sequestration put mid-market defense contractors in the crosshairs of those looking for industries where key companies could experience struggles in 2013. While there has been little to speak of in the way of defaults in the sector to date, it is becoming increasingly clear that the government spending cutbacks are going to hurt the mid-level players in a manner far deeper than their bigger counterparts, which have more options for keeping cash flow and profits afloat. Altman, the Max L. Heine Professor of Finance at the NYU Stern School of Business and director of research in credit and debt markets at the NYU Salomon Center for the Study of Financial Institutions, as well as creator of the vaunted Z-Score bankruptcy/insolvency predictive metrics system and a newer smart phone application for the Z-Score, told NACM that overreactions to the threat of government spending cuts may have hurt the industry as much as the cuts themselves.
“In preparation, a lot of the companies that buy from defense contractors cut back, and more than they needed to,” Altman said. “Sales went down; investment went down. In some cases, overreacting is self-reinforcing.” He added that the subsequent dive in requests of credit from banks may have had the collateral damage of influencing banks to cut back on what they offered, leading to chilled availability and poorer terms for business borrowers. All this will only cause the mid-markets to lean more heavily on trade creditors, going forward. Trade creditors need to be aware of the dangers in dealing with an industry heading into what appears to be a stiff headwind, barring a change of heart and unexpected cooperation within the U.S. Congress, before granting credit on debtor-friendly terms.
In addition, Altman fretted about the potential for a spike in mergers within the defense contracting industry as mid-level players begin to exhaust their cash positions. What that means to credit professionals in this sphere is the likelihood of fewer credit jobs, and, as the industry becomes dominated even more by larger providers, the spread of the “do more with less” culture.
- Brian Shappell, CBA, CICP, NACM staff writer
You are a credit manager at a company with strict policies prohibiting accepting gifts exceeding $25 in value from customers when, one day, a box of high-end steaks arrives at your office from a foreign business contact. And said contact is coming from a place where respect is of massive importance, and such gift-giving is seen as an industry standard. It's quite the dilemma, and it's an actual example discussed by a delegate at the 2013 Credit Congress during the educational session on “International Business Ethics.”
Session speaker Pam Thomas, of Cognisant Training Limited in the United Kingdom, responded to the scenario noting that, in parts of Asian and Latin American, the sending of such a gift is the ultimate “token of respect and friendship" and an important part of how those cultures conduct business. “Sometimes it would be almost disrespectful to return it...even if, in the United States, it may seem like a bribe." Such scenarios render open communication so important, which is also difficult with language barriers in play. Even someone from another country who speaks your language fairly well might not understand the slang and nuances or that typical, friendly conversation and business-speak in a language can be very different.”
“We say things like 'sweep it under the rug' and 'let's do lunch,” said Thomas. “Well, if you're talking to a Chinese person, what are they going to think you mean?” Frankly, they very well may have no idea.
All of this helps reaffirm the importance of working with translators and or go-betweens from the area in question when dealing in international B2B credit-granting. Their knowledge of the language, culture and business practices might just prevent a massive faux pas from which a recovery, and savior of the relationship, simply might not be possible.
-Brian Shappell, CBA, CICP, NACM staff writer
In his eagerly anticipated return to Credit Congress, renowned New York University Professor Ed Altman, PhD recounted the opinion he held last year that the hero or villain in the survival of the European Union as a financial bloc was going to be Italy. That hasn't changed, though his estimations for a default by Italy have.
Altman told two crowded sessions on Wednesday that Italy was not likely to slip into default. By his estimates, a worst-case scenario has only a 30% chance of happening, which is significantly worse than the aggregate market prediction of just over 10% lower, but better than the 50% chance he estimated at last year’s Credit Congress. Developing innovation in manufacturing sectors like fashion and autos, and a wealth of brand-name products for export were Altman’s reason for lessening the likelihood of default, in addition to a wealthy private sector that should be able to overcome the country’s rigid labor system, high dept and political corruption. “If they make it, the euro will be in good shape. I still believe that,” said Altman, who invented the vaunted Z-Score bankruptcy predictive metrics system and a newer smart phone Z-Score application.
Altman noted that with Greece in a virtual lock to default and Spain getting more likely to do so, it remains that the eventual performance of Italy will be what decides if the European Union's common currency can withstand the crisis. Still, if the EU suffers more problems, Italy may just be “too big to save.”
- Brian Shappell, CBA, CICP NACM staff writer
Foreign exchange risk is an aspect of exporting that often confounds credit professionals and their companies. Attendees of the 117th annual Credit Congress, and specifically those that took part in FCIB's International Track, held in conjunction with this year's Credit Congress, the mystery of hedging foreign exchange risk was unraveled during Wednesday afternoon's Working Capital Management and Cash Flow Forecasting session.
Led by moderator Patrick Spargur, ICCE of Bally Technologies with a panel comprised of Gent Culver, CICP of International Game Technology and Scott Edgeworth, also of Bally Technologies, the session offered a fascinatingly no-nonsense look into how foreign exchange affects a company's working capital, and at what point a company should consider implementing an F/X risk hedging program.
“It depends on the size of those foreign sales,” said Edgeworth. “If you have a small percentage of your sales that are in a foreign currency and it's not affecting your bottom line or your earnings per share, then most companies won't do it.”
For larger public companies, Edgeworth noted that the effect of foreign exchange losses on earnings per share serves as a barometer for when they'll consider initiating a process to mitigate those losses. “When it starts to move that earnings per share figure by about a penny or so, that's when they start looking at it,” he said.
The panelists also discussed currencies whose foreign exchange risk is particularly difficult to mitigate, specifically the yuan. “It's a harder currency because it's controlled by the government and I don't know what I want to do with it,” said Edgeworth, who also noted that Brazil's currency was so difficult to work with on the foreign exchange market that he implemented procedures to intervene before sales went through. “In Brazil, you might get sales, but you will never get your money out.”
Changes in currency values also affect cash flow forecasting, as panelists discussed their sources of information for what's coming next with a particular country's currency. While bank reports and currency forecasts are popular, the panelists noted that these must be taken with a grain of salt, because of how slippery these predictions can be and also because so many different factors can affect a currency's value.
- Jacob Barron, CICP, NACM staff writer
Credit Congress '13: 'Balance' the Key as Credit Professionals Call for Chapter 11 Changes during Hearing
Update 2: Before a packed room during NACM's 2013 Credit Congress, six credit veterans testified as part of a public field hearing conducted by the American Bankruptcy Institute (ABI) for the need of change to the Bankruptcy Code in the areas of Section 503(b)(9) and preferences. What resulted was a lively discussion with seven of the members of the ABI Commission to Study the Reform of Chapter 11.
ABI Commissioner Geoffrey Berman noted that, with changes in the world financial environment, “a better set of tools is required” in Chapter 11 bankruptcy, and that the Bankruptcy Code “was not designed to address these changes.”
An important topic that came up several times during the hearing was creditors' committees. While questions arose about costs involving committees, the ability to find people in the applicable trade who are willing to serve, and the potential for conflicts of interest, the value of committees remains, which appeared to be reflected during the ABI commission members' comments. Commissioner William Brandt Jr. said it was very unlikely creditors' committees “will see their sunset.”
“Our task is not to roll back the tides of history, but reset the equilibrium,” Brandt said. Meanwhile, Commissioner Steven Hedberg noted the importance of the Commission in “balancing rights” between secured and unsecured creditors. “It's a big part of what's going to happen in this process.” However, such "balance” discussions also led to whether or not service providers should have the same rights within Section 503(b)(9) as manufacturers.
In any case, a repeal should not be on the table. "Repealing 503(b)(9) would create so much more uncertainty in the supplier community,” said Sandra Schirmang, CCE, ICCE, senior director of credit for Kraft Foods Global, Inc. “It would make such precautionary, damaging actions much smarter moves for suppliers, to the detriment of debtors. As unsecured creditors, we're willing to take on reasonable risk, but not to an outrageous extent and not if we think that money won't ever be paid to us.”
On preferences, Berman took exception to testimony regarding the idea that all or a majority of trustees are shot-gunning without analysis, or don't care while filing preference claims. “Not everyone takes a check register and files a lawsuit,” he said. “Saying a trustee is just taking a check register and filing lawsuits is not typically accurate. Yes, there are firms that do that, but that's not how everybody does it,” he said.
Berman also got into a spirited debate with Kathy Tomlin, CCE of Central Concrete Supply Co., Inc., one of three on the preference panel, over the proposal that the onus should be on those filing the preference claim rather than the creditor. He also said that the “guilty until proven innocent” theory could be working against creditors.
Berman argued that modern credit managers have a greater opportunity/ability to gather information than ever before, telling panelists “the moment you have a claim, go pull the records.” Tomlin responded that creditors only had their own record, and that advances in technology have worked to provide debtors with that same, greater availability of information. Overall, panelists representing NACM continually noted just how far preference law has gotten away from the intent within the Code.
"The tremendous amount of expenses involved in pursuing and fighting actions are doing too much to drain the already deficient pot that exists in bankruptcy,” said Val Venable, CCE, director of credit at Ascend Performance Materials, LLC. “The preferences statute should be changed so that the pursuer of preference recoveries should first prove that the payments were not in the ordinary course of business and that new value was not given by the creditor.”
- Brian Shappell, CBA, CICP, NACM staff writer
Once again this year, several Executive Exchange Sessions at Credit Congress took on a highly interactive tone. The session on collections, like past years, drew a large crowd. One of the session's key messages involved treating collections more like an art form rather than the ham-handed approach of some firms that exclusively perform collections, but not other credit functions.
Moderator Kathleen Quill, CAE, CBA, president and COO of NACM Gulf States, noted that true credit professionals can't “go in with a chainsaw” as soon as a customer goes late. That said, a poll of credit professionals in the room found that an increasing number of delegates are adopting the standard practice of charging their customers a late fee when a debt goes 31 days beyond terms. While some wondered if this could be seen as discrimination, panelist Bob Bernstein, Esq., Bernstein Law Firm PC, tried to ease such concerns. “I've heard that concern, but I've never seen a case on that,” he said of the discrimination issue. “In most states, you are allowed. It is spelled out in the statute.
In addition, more than half of the attendees noted that are using credit risk scores to prioritize collections efforts and identify the debtors that need heightened levels of attention. “It makes sense that ones that are high risk should have more touches,” said panelist Mark Woolnough, CCE, CPA, O'Neal Steel, Inc., “We expect this kind of risk-based approach will help drive us to the next level.”
- Brian Shappell, CBA, CICP, NACM staff writer
“If you think taking a risk is the right thing to do, you've got to do it,” said author/entrepreneur/famous card-counter Jeffrey Ma in his speech during the Credit Congress Super Session and Annual Business Meeting on Tuesday. “You can't favor inaction over action.”
Risk again emerged as a prevalent buzz topic for credit professionals at this year's conference held in Las Vegas. Ma, who won millions of dollars at casinos playing blackjack as part of the infamous MIT Blackjack Team that inspired the movie “21,” drove home that point, albeit in ways with which credit professionals may not be familiar. This included recalling his decision to trust in well-developed, mathmatically-based methods that saw him continue playing blackjack during a weekend in which he lost two consecutive hands valued at $50,000 early on. For what it's worth, Ma didn't finish with $70,000 in gambling profits for the weekend.
“You can make the right decision without getting the right outcome...but, if you have a system you really believe in, you have to stick with it,” Ma told delegates.
Following Ma's keynote presentation, NACM presented the Annual Membershp Awards to the affiliates that saw growth in either the numbers of primary members of record, or additional members from the same company. These were presented to:
- NACM Oregon
- NACM Gulf States
- NACM Minneapolis
- NACM St. Louis Gateway Region
- NACM Wisconsin
- NACM Rhode Island & Southern New England
NACM also presented Denise Moller, CCE, ICCE, credit and collections analyst with Tru Vue, Inc., with the Graduate School of Credit and Financial Management 2012 Student Leadership Award.
- Brian Shappell, CBA, CICP, NACM staff writer
Check back throughout the week for continuing coverage from the 2013 Credit Congress in Las Vegas, including articles on emerging trends and education sessions.
The National Association of Credit Management's (NACM's) 117th Annual Credit Congress kicked off in Las Vegas this morning with an insightful presentation by Terry Jones, founder of Travelocity and author of On Innovation.
Jones tailored his comments specifically to fit the audience of over 1,200 credit and risk management professional, relying on his lengthy track record of internet business success to open attendees' eyes to new perspectives on how companies can grow in an interconnected world. First, Jones noted that innovation and creativity are separated by one important difference. “Creativity is thinking up new things. Innovation is about doing,” he said. “It's about putting an idea to work,” Jones added, showing a humorous slide that illustrated “the thinker and the doer” in which the doer was nowhere to be found. “The doer left,” said Jones. “He's out doing.”
The speed of today's business world requires companies to embrace change and accommodate what's become a very powerful buyer. “We're talking about innovation because change continues to accelerate,” said Jones. “We're living today in a wired world. Customers are getting smarter and they have those tools in their toolbox. This new world is a world where choice happens instantly. It's a world where prices are transparent.”
Information, said Jones, had escaped thanks to the Internet. “It's found its freedom,” he noted. “It's being beamed to us all the time and we are empowered by it.” Companies that fail to accept this new reality and cling to refrains like “we've always done it this way” will find themselves left behind as other, smarter companies embrace change and aim to thrive in it. “If you don't like change,” said Jones, “you're going to like irrelevance even less.”
Jones went on to discuss the big structural changes that are required for companies to create what he called “a culture of innovation.” “It's about new service models, new payment models,” he said. “It's about taking a little bit of money and making it a bigger pile of money.”
Innovation, according to Jones, has two pillars: the culture and the team. The former aspect is often where companies tend to lose themselves, he observed. “Culture eats strategy for lunch. If you don't have the right culture, it doesn't matter how good the planning effort is,” said Jones. “You simply won't move forward unless you create a culture of innovation.”
What Jones urged attendees to build was a culture where failure isn't necessarily a bad thing, describing a “culture of innovation” as “a place where creativity can exist.” “Innovation is not the Olympics,” Jones said. “Innovation is like baseball, and in baseball, if you fail 70% of the time, you're actually doing pretty good.”
Jones was just the first of many presentations scheduled at this year's Credit Congress that aim to give today's credit and risk professionals the knowledge they need to thrive now and in the future. He greeted attendees and signed copies of his book, On Innovation, in the NACM booth at the Credit Congress Exhibition Hall after his enlightening presentation.
The Basel III standards for international banking are set to take effect within months. And despite numerous attempts to clarify sections of the accord, there is still so much unknown about the impact the changes will actually have, said panelists at the Finance Credit & International Business Association (FCIB) Annual International Credit & Risk Management Summit in Prague.
Elisabeth Sutter-Becska, vice president, head of global export finance at Raiffeisen Bank International in Austria, says rising importance of the trade credit role and for funding costs, among other increased costs in general, should be expected. As such, trade creditors and their businesses should be preparing in a number of ways in the near-term: Reassess working capital management, consolidate treasurer operations, optimize payment streams, improve receivables management, shorten payment tenors when possible and diversify resources. Still, it is hard to plan actions because of how difficult it is to predict what will actually occur.
“Nobody can say what is going to come from the three regulation, and there are not studies that have determined what would be the affect on the real economy,” she told FCIB delegates.
Meanwhile, panelist Neil Ross, trade credit insurance profit centre manager EMEA, AIG Euopre Limited in the United Kingdom, also voiced concerns about potential confusion about what will actually happen.
“One of the things that strikes me, you have the Basel III rules, but it's up to each country to interpret the rules; each country has slightly different interpretation,” said Ross. “It makes it much more complicated.”
Ross added that credit insurance will likely play a a bigger role as banks are “under pressure to keep head counts down...Doing analysis on thousand of buyers is frankly not where the banks want to be right now.”
-Brian Shappell, CBA, CICP, NACM staff writer
The Finance, Credit and International Business Association (FCIB) will hold its first Spring Conference at the National Association of Credit Management’s (NACM’s) 117th Credit Congress & Exposition on May 18-21, 2013 at the Rio Hotel in Las Vegas. NACM's Credit Congress has always provided a venue for both domestic and international credit professionals who extend business-to-business credit, but with the inclusion of a specialized Spring Conference comes a focus on the growing opportunities in global trade.
“The purpose of the FCIB Spring Conference is to expand the knowledge base for U.S. companies that are starting to export, and to further educate and provide tools for the advanced international credit management executive,” said Marta Chacon, CICP, FCIB Director - The Americas. “The specially-designed sessions will address the pressing issues facing international trade professionals around the world, and provide the solutions that work in various global markets.”
The FCIB sessions, integrated into the Credit Congress schedule of events, focus on expanding the efficiencies in international credit management. Topics include how to create profit, reduce risks, identify the potential pitfalls in exporting, discuss ethical compliance in order to work effectively on a global level and cover the intricacies of doing business in the United States' largest trading partners, Canada and Mexico.
The Spring Conference comes on the heels of other noteworthy FCIB endeavors. Earlier this month, FCIB entered into a strategic partnership with the U.S. Commercial Service to promote exporting under President Barack Obama's National Exporting Initiative (NEI), which aims to double U.S. exports by the end of 2014. The partnership aims to make it easier for all U.S. companies to take advantage of exporting opportunities offered around the globe, with FCIB acting as a portal through which exporters can find the tools and resources they need. Under the partnership, FCIB has already played a role in the development of the third edition of the International Trade Agency’s Trade Finance Guide, and the first Spanish-language version of the guide.
“With an estimated 95% of the world’s buying power existing outside the United States, U.S. businesses of all sizes should consider the benefits of selling their products and services abroad,” said Chacon. “By incorporating a spring conference into the yearly Credit Congress, FCIB furthers its role in helping companies expand into the international market. With FCIB's sessions open to all registrants, those looking to begin exporting, as well as already-advanced international trade professionals, receive the benefits of tailored education, in addition to numerous networking opportunities and an expo of product and service providers that a large venue offers.”
FCIB and NACM welcome walk-in registrants and the press.
In a meeting that followed the Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit, members of the European Commission promoted the purposes and potential for success of the European Late Payment Directive. Those many aren't convinced that setting harder limits on the amount of days government entities and debtor companies will actually cause positive change and trump local laws, especially in places where slow paying is an engrained culture, some see it as an important step.
“It’s the best thing to happen in credit management in a decade because now we have European [Union] support. That gives us higher profile as credit managers,” said Mark Harrison, chief executive of the Czech Institute of Credit Management during a panel during the FCIB event.
In an FCIB interview onTuesday, Antti Peltomaki, deputy director-general of the European Commission’s Enterprise and Industry Directorate-General, said he understands the those being skeptical over the speed of cultural change, but sees the Directive as a critical step in the right directions for credit-granting businesses. “It is good and important to have the legal framework...It is up to you whether you want to do something," said Peltomaki.
-Brian Shappell, CBA, CICP, NACM staff writer
The extended version of this story, including more from Peltomaki, published in this week's edition of eNews, is available by clicking here.
At this week’s Finance, Credit and International Business Association’s (FCIB’s) Annual International Credit and Risk Management Summit in Prague, two FCIB members—Angela Bradbury, ICCE and Daniel Van Damme—were presented with its distinguished Service, Development and Growth (SDG) Award.
Bradbury, group credit and payable manager with Innospec, Inc. in the United Kingdom, and Van Damme, group working capital manager with Tessenderlo Chemie SA in Belgium, joined the short list of SDG award winners. Van Damme serves as the chairperson of the Chemicals Industry Group and Bradbury serves on FCIB’s European Advisory Council and is a frequent conference speaker, taking part in the Prague summit and scheduled to present at next week’s Credit Congress in Las Vegas.
“They have tirelessly worked to educate their staff, to really contribute and give back into the international credit community,” said Noelin Hawkins, FCIB director, Europe, The Middle East & Asia. “I can’t recall anyone working harder.”
The award is designed recognize the valuable contributions volunteers are making to further grow and develop FCIB’s member services and to encourage more people to serve. The first winner of the award, Mannes Westhuis, LL.M., CICP, Bierens Debt Recovery Lawyers, also eloquently described it as something that represents a win-win situation for today’s international credit-related professional: getting in touch with customers and information on leads, while “being socially and professionally responsible.”
- Brian Shappell, CBA, CICIP, NACM staff writer
All eyes have been on Spain when it comes to nervous businesses owners, credit professionals and other market-watchers wondering when the next European sovereign insolvency is going to occur. And while it would be overly optimistic to assume that danger wasn't imminent in Spain, a top four economy, by size, on the continent, another nation may beat it to default: Slovenia. At least that was the sentiment at FCIB's Annual International Credit & Risk Management Summit in Prague.
“Slovenia is far riskier than Italy or Spain,” said FCIB panelist Silvina Aldeco-Martinez, managing director of Risk Analytic Products, Standard & Poor's. She noted that, unlike Spain, it's not overall risk throughout many sectors; it's just massive problems in its banking sector.
Freddy Van den Spiegel, of BNP Paribas Fortis, agreed that Slovenia may slide into insolvency and that Spain faces many issues. Because of the nature of the problems and size/importance of its economy to the EU, Spain's filing, should it occur, would be a significantly bigger event. He said the prospects for Spain continue to generate pessimism because its high unemployment (25% among the young) shows little signs of improving because the nation doesn't have solid products and brands to make them competitive and, thus, pull themselves out of the rut. The big problem therein is that France, once hoped to help the recovery financially as much as Germany, holds so much Spanish debt.
“If it happens, we'll see what happened in Cyprus: panic,” the Belgian-based economist said. “If Spain gets into trouble, then France comes onto the radar”
All that said, Van den Spiegel still believes the European Union and the common currency will survive, but in a setting of more centralized EU power both in lawmaking and on the part of the European Central Bank.
-Brian Shappell, CBA, CICP, NACM staff writer
Off the strength of continued growth as a hub for service centers and more generalized outsourcing, nations in eastern Europe, Soviet Bloc countries until the late 1980s, are emerging as slightly bigger players in the business and credit world. However, the corporate information emanating from there often is not entirely trustworthy, said panelists at FCIB's Annual International Credit & Risk Management Summit in Prague.
FCIB panelist Elisabeth Sutter-Becska, of Raiffeisen Bank International in Austria, noted that problems with performing loans levels in Ukraine and Russia are increasing again after a few years of improvement. Fellow FCIB panelist Fabrice Morel, of Berne Union, noted there was a major spike in 2008 as well, one that showed the long-term stability of credit insurance companies in Europe in some ways, but that the four following years marked a time when issues had been mitigated in significant fashion.
The potential for another spike stems from the quality of information on the businesses in several eastern European nations. Kateryna Barabash, managing director and owner of IBcontacts, a Ukraine-based firm dealing in credit, legal and news services, said the information can be hard to analyze...if a credit manager can even get it at all.
“You have to realize there is a lot of information that is incorrect or out of date,” Barabash said, adding that a high level of nepotism plays into what is released by companies. “You have to verify this information with a buyer and your partner...don't rely just on existing database information.” Beyond that, she noted that perhaps the even bigger problem is getting data like financials since estimates of the rate of refusal for such requests tracks between “60% and 70%.”
In short, her sentiment was, if the company is not being transparent, they are very likely hiding something important in the grand scheme of creditworthiness.
-Brian Shappell, CBA, CICP, NACM staff writer
Those hoping for short-term optimism, especially on most member nations of the European Union, at the start of the content portion of FCIB's Annual International Credit & Risk Management Summit in Prague Monday got a bit of reality check from the Belgian-based economist serving as keynote speaker. However, he did note that the idea that there will be bumps, if not occasional “chaos,” doesn't mean things will always be bad between now and the increasingly far-off recovery.
Freddy Van den Spiegel, of BNP Paribas Fortis, said the global economy has largely experienced its chaos moment in the last several years since various bubbles burst in key nations like the United States and some in Europe. That said: credit professionals should not consider that moment to be something of the past.
“The chaos moment is still continuing; this is the world in which we are,” said Van den Spiegel. “But there is a natural chaotic nature of any system or human behavior. And you can't just hide until the storm is over.” As such, strong risk management practices are going to continue to grow in importance in credit departments, but they will also grow in difficulty.
Meanwhile, perhaps the biggest event that needs to happen, in Van den Spiegel's view, is the European Union finally moving towards a more united bloc on issues of banking and politics. That includes having a true “president” type figure as well as a European Central Bank that exists more like the Federal Reserve of the U.S. in scope. But politics may keep that on hold because of the the election in Germany, by far the strongest EU member, coming up in September.
Van den Spiegel noted that it was unlikely anything would happen before then because the current leadership backing plans to ease back on austerity elsewhere and essentially fund bailouts in places that have not been as fiscally responsible could raise the ire of German voters. But, he believes, the Merkel government will come around, assuming the incumbents remain in power.
“There are really no other solutions,” he said. “The hurdle is that austerity on countries that failed limits their ability to grow. If they cannot grow, they cannot recover. You need balance right now.”
-Brian Shappell, CBA, CICP, NACM staff writer
The Finance, Credit and International Business Association (FCIB) is already an important global source of exporting education and professional networking. Now, however, the association is expanding to become a portal through which exporters of all sizes can find the tools and resources they need to effectively grow their business through international trade.
Most recently, at the Port of Los Angeles' Trade Connect seminar held on May 8, FCIB, in partnership with the U.S. Department of Commerce's International Trade Administration (ITA), unveiled the first-ever Spanish-language edition of the ITA's Trade Finance Guide. FCIB member Diego Jiménez, ICCE, credit analyst at Accuride International, Inc., was instrumental in the review of the translated guide, as well as to the program of this week's Trade Connect seminar. Another FCIB member, Timothy Bastian, ICCE, corporate credit manager for Western Oilfields Supply Company, also presented a session at the event.
The announcement came on the heels of FCIB and ITA signing a new memorandum of understanding (MOU) in order to increase awareness in the U.S. business community, particularly among small and medium-sized businesses, of the opportunities offered by exporting, as well as the tools and resources available to companies through the two organizations. The MOU builds on previous collaborations between FCIB and ITA, beginning with the drafting of the original Trade Finance Guide, its subsequent updates and now its first Spanish-language edition.
“By working together, FCIB and ITA are making it easier for all U.S. companies to take advantage of the exporting opportunities offered around the globe," said FCIB's Director–Americas Marta Chacon, CICP. "The Trade Finance Guide, which is now in its third edition and is now available to Spanish-speaking business owners, is only the first step in what will be a long line of collaborations geared toward unlocking world markets for businesses of all sizes."
Through the MOU and updated Trade Finance Guide, FCIB is becoming more deeply ingrained in the policy goals outlined in President Barack Obama's National Exporting Initiative (NEI), which aims to double U.S. exports by the end of 2014. FCIB's partnership with ITA puts them in good company with the U.S. Commercial Service's other strategic partners and will enable the association to better support the goals of the NEI by educating U.S. businesses about the benefits of exporting and directing them to the wealth of public and private resources available to assist them.
The financial troubles and subsequent attempts/talks of a second run at filing for municipal bankruptcy in Harrisburg, PA have taken many twists and turns. The latest wrinkle came this week in the form of the first-ever Securities and Exchange Commission charges of security fraud, charges the city in question has agreed to settle, against a municipality.
The SEC alleges the city’s officials made a series of “misleading public statements” regarding its financial condition in various places: its budget report, annual and mid-year financial statements, the mayor’s “State of the City” address. The agency noted that such failures of compliance and “misstated” information left creditors with little in the way of reliable information when assessing the city, notably from 2009 through 2011.
“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” said SEC’s George Canellos. Harrisburg notably missed $13.9 million general obligation debt service payments on March 15.
In 2011, Harrisburg’s city council defied the wishes of the state and its own mayor by voting to file for Chapter 9 bankruptcy. Supporters of doing so said it would give the city leverage to renegotiate debt largely tied to a massively unsuccessful trash incinerator project, once so wrongly predicted to be a financial windfall for the city (the SEC listed debt from the project at $260 million), and provide more of a fair option to local taxpayers that didn’t want to take a hit out of proportion to that of investors. State and mayoral plans to sell off city assets such as parking garages and the incinerator operation, as well as raise taxes, were rejected by the council. Still, Harrisburg’s filing was rejected when a judge upheld a hastily-passed Pennsylvania law aimed at temporarily blocking third-level cities in the state from filing.
- Brian Shappell, CBA, NACM staff writer
The Finance, Credit and International Business Association (FCIB) and the U.S. Commercial Service of the U.S. Department of Commerce’s International Trade Administration (ITA) have signed a Memorandum of Understanding (MOU) to increase awareness in the U.S. business community, particularly among small and medium-sized businesses, about exporting and the tools and resources our organizations provide to help them succeed.
“We’re pleased to welcome FCIB as a partner in our efforts to strengthen the U.S. economy and support local jobs through expanding U.S. exports,” said Under Secretary of Commerce for International Trade Francisco Sánchez. “With more than 95 percent of potential customers living outside U.S. borders, it’s imperative that American companies of all sizes consider the benefits of selling their products abroad.”
The MOU builds on previous collaborations between FCIB and ITA, including the development of the third edition of ITA’s Trade Finance Guide: A Quick Reference for U.S. Exporters and a first-ever Spanish-language version of the guide, available soon. Written in plain and easily understood language, the Trade Finance Guide provides exporters of all sizes with what they need to know in order to use exports to grow their business.
“By working together, FCIB and ITA are making it easier for all U.S. companies to take advantage of the exporting opportunities offered around the globe. The Trade Finance Guide, which is now in its third edition and will soon be available to Spanish-speaking business owners, was only the first step in what will be a long line of collaborations geared toward unlocking world markets for businesses of all sizes,” said FCIB’s Director–Americas Marta Chacon, CICP. “FCIB is looking forward to acting as a portal through which exporters can find the tools and resources they need to effectively conduct international trade.”
Under the MOU, FCIB and U.S. Commercial Service’s network of worldwide offices will work together on marketing, education programs and events leveraging both entities’ expertise to help make U.S. businesses—and particularly small and medium-sized firms—more export savvy. Joint activities may include building awareness through outreach at trade shows, direct mail campaigns and online registration for resource support.
In 2010, President Barack Obama announced the National Export Initiative (NEI) with the goal of doubling U.S. exports by the end of 2014. The partnership supports this goal by educating U.S. exporters about the benefits exporting and expanding their exports to additional markets, and the public and private sector resources to assist them. FCIB joins several of the U.S. Commercial Service’s Strategic Partners who have connected more than 1,500 companies to federal export assistance.
- FCIB and the U.S. Commercial Service
The Third Circuit has long been perceived as the most efficient, and perhaps most filer-friendly, when it comes to corporate bankruptcies. Perhaps it's why the district is seen as the most likely choice for filings. However, the latest numbers from the U.S. Bankruptcy Courts note that business filings coming from the district place it only in third among the 11 districts.
Chapter 11 bankruptcy filings throughout the nation declined by more than 10% during a one-year period between the end of March in 2012 and this year. The total now sits at 9,811, down from March 2012’s 11,339. The total of all types of bankruptcies also dropped by more than 10% to 1.17 million. Still a tiny percentage overall, Chapter 9 (municipal bankruptcy) filings increased to 20 between March 2012 and March 2013 from 13 during the previous 12 months.
Within the numbers, the Ninth District (West Coast) far and away had the most filings for the period at 2,418, down significantly from the 3,188 last year. It was followed the Eleventh Circuit (FL, GA, AL) with 1,288 and the aforementioned Third Circuit (located in Delaware and including NJ and PA) at 1,213. The lowest total of filings, excluding Washington, D.C., came out of the Eighth District (AR, IA, MN, MO, NE, ND, SD) with just 317.
-Brian Shappell, CBA, CICP, NACM staff writer
It comes as no shock but the global slowdown has affected trade. The warnings have been sounded by nearly every global analyst as they have looked at the activity (or lack of it) in some of the major supplier nations.
Part of the challenge to Chinese growth has come from the fact that too many of the nations that usually buy from them are not in very good economic shape. Meanwhile, the U.S. consumer started to go into hibernation in the last month or so, resulting in a 3% drop in imports.
In recent days, there has been a high-profile disaster in Bangladesh – the collapse of a building housing several busy garment factories – that has alerted the casual observers of global trade patterns about conditions in many of these export nations being far less than acceptable. The collapse killed and maimed thousands and, suddenly, the companies that buy these items are backtracking and trying to reassure consumers that they are looking into the situation. It is unlikely that consumers will react all that strongly, but if demand is already stuttering a little, these are the tragedies that can push consumers over the top.
The export side of the equation has also shown some signs of strain. The rate of U.S. exports declined by 1% in March, and that contrasts with an overall rise of 4.3% in exports in all of 2012. There has been no significant change in the factors that have allowed the U.S. to become a more aggressive export nation in the last few years, but global demand is down. This has offset the advantages the U.S. had developed based on currency values and improved manufacturing productivity. The U.S. had been selling pretty consistently to the states in South America, but newfound problems in Brazil and Argentina have reduced their ability to keep buying the US goods.
One other important factor as far as U.S. import activity is the reduced demand for oil. Slower development of the economy has meant that there is less activity and, therefore, less need to buy it. That will be a shorter-term factor, and demand will increase as the economy rebounds. The longer-term trend is that the U.S. is steadily producing more of its own oil, reducing importing from other nations.
Going forward, the biggest disappointment is likely to be that China continues to struggle. The reality is that China is a linchpin in much of the global economic recovery. If China is not selling to the U.S. and Europe, it is not making enough money to buy commodities, raw materials and intermediate goods from nations like Australia, Indonesia and Thailand. If these nations are not selling to China, they don’t have the money to buy from the U.S. That pattern makes what is happening in China very important.
-Armada Corporate Intelligence
The European Central Bank (ECB) cut interest rates in the eurosystem by 25 basis points today, from 0.75% to a record low of 0.50%.
Putting it mildly, the emergency rate cut was driven by persistently weak economic performance among the members of the eurosystem. Most notably, unemployment among the 17 member countries that use the euro recently set a record at 12%.
"Weak economic sentiment has extended into spring of this year," said ECP President Mario Draghi after announcing the rate reduction. "The cut in interest rates should contribute to support prospects for a recovery later in the year," he added, leaving the door open for future cuts should they become necessary. "Against this overall background, our monetary policy stance will remain accommodative for as long as needed. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability," said Draghi.
The rate cut was no surprise to markets, but certain details mentioned by Draghi during his press conference raised some eyebrows among analysts. "Draghi confirmed at the press conference that the ECB is open to a negative deposit rate, which would effectively charge banks to deposit funds with the ECB and therefore act as a major incentive to boost lending," said Craig Erlam, market analyst at Alpari. "Obviously, as we’ve seen both in the eurozone and the UK, incentives don’t guarantee anything. However, this would be a bold step from the ECB and has understandably been met with approval in the markets."
However, Erlam remained skeptical that today's rate cut would jump-start a huge turnaround in the European market. "All things considered, the one thing to take from this is that the ECB has done nothing that is going to improve circumstances in the short term," he said. "Basically, it’s business as usual in the eurozone."
- Jacob Barron, CICP, NACM staff writer