November 18, 2010
South Korea signed on to a key free trade agreement with a nation from the West this week. That nation, however, was not the United States, much to the chagrin of business analysts who believed President Barack Obama's trip to Asia this month was a litmus test of the administration's interest in trade and perhaps even the president's once strong international influence.
While many words could be used, largely dependent on the political leanings of the analyst, to describe Obama's trip to South Korea for the G20 economic summit, it would require perhaps the rosiest-colored glasses to consider "success" among them. A major talking point in the run-up to the G20 meeting, held in Seoul, was the U.S.-South Korea free trade agreement that has been languishing since 2007. Though Obama vowed to have the agreement hammered out before the G20 convened, no deal was struck even upon the president's exit from Asia. South Korea did forge a new free trade agreement with Peru, which should boost the Asian nation's automotive export prospects. Ironically, it's the auto sector that's a major sticking point for the U.S., as South Korea has largely rejected importing U.S. cars based on the reasoning that they are bigger polluters than domestic cars. The U.S. auto lobby and trade unions have staunchly opposed the agreement, calling it imbalanced.
Obama, for his part, says the Korean free trade agreement remains a priority and that he didn't want to rush into a deal that wasn't mutually beneficial just to get it completed. Unfortunately for the president, who has been branded by some industry experts as anti-trade and anti-business, finishing the trade agreement was seen as an important step to proving the administration is serious about trade.
Obama, appearing to lose some of the stroke he's had on the international stage in previous years, also was a popular international pi√Īata at the G20 summit. He and the United States were criticized sharply for everything from the reasons behind the ongoing global recession to the perceived-as-risky quantative easing effort outlined this month by the Federal Reserve, which is an independent body and technically not under the president's control. Furthermore, Obama failed to make headway in convincing other world leaders to pressure China into properly valuing its currency as a number of nations, though admittedly concerned with China's significantly undervalued money and trade advantages that come with it, refused to support Obama on a hard-line revaluation push.
"There was deep concern that the U.S. was unable to hammer out a deal with South Korea and about how the G20 meetings have been handled," said NACM Economic Advisor Chris Kuehl, PhD of the post-trip meeting between White House officials and the Chamber of Commerce. "There was a sense that 'free trade' had been made a scapegoat by many in political circles, and the business community lays the blame squarely on politicians who used trade as a whipping boy. The fact that the U.S. economy has become more dependent on exports than ever was reasserted by the group, and it was suggested that the White House must get much more aggressive in promoting trade."
The Asia trip may not have been a total loss, however, as Obama did appear to strengthen the relationship between the United States and emerging economic power India before his difficult stay in Seoul began.
Brian Shappell, NACM staff writer
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A cadre of senators, led by Max Baucus (D-MT), recently introduced a bill to repeal an expanded Form 1099 income reporting requirement set to take effect in 2012. The provision, originally passed in the health care reform bill earlier this year, would've required businesses and tax-exempt entities to file a 1099 form for any payments made for goods and certain services that exceeded $600 over the course of a year.
"I have heard small businesses loud and clear and I am responding to their concerns," said Baucus, who serves as chairman of the Senate Finance Committee. "Small businesses are the backbone of our economy in my home state of Montana and across the country, and they need to focus their efforts on creating good-paying jobs, not filing paperwork."
The new reporting requirement was originally included in the Affordable Care Act to increase the enforcement tools available to the Internal Revenue Service (IRS). In theory, by receiving 1099 forms for all of these transactions between buyers and suppliers, the IRS could keep a sharper eye on what businesses spent and earned, ensuring that all taxes owed were accurately paid and that tax rates could be kept at appropriate levels. However, the onerous paperwork requirements led to a swift condemnation from all corners of the business community, and advocates quickly called for a full repeal, leaving lawmakers to find another way to improve tax compliance while keeping taxes low.
Baucus was joined by Senators Mark Begich (D-AL), Debbie Stabenow (D-MI), Jeanne Shaheen (D-NH) and lone Republican Scott Brown (MA), making the effort somewhat bipartisan, although Brown is widely seen as one of the more liberal Republicans in the Senate. Sen. Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship, also joined the repeal effort, noting that the 1099 requirement could restrict job creation.
"Businesses in Louisiana and across the country have made it clear that expanded Form 1099 reporting is not something they can handle," said Landrieu. "Placing another regulatory burden on the very businesses that we are counting on to create jobs is just not smart."
In a statement, Baucus announced that the repeal bill was introduced this past Monday, the first day of the lame duck congressional session, although no text is yet available.
Jacob Barron, NACM staff writer
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"The difference between being a secured creditor and an unsecured creditor often is nothing more than a choice." It's a bold statement, but one that Gregory Powelson, director of NACM's Mechanic's Lien and Bond Services, takes to heart.
Powelson said many in the credit profession fail to realize the value in understanding how to properly use Article 9 of the Uniform Commercial Code to securitize personal property/inventory and, thus, are missing the opportunity to engage it. And not being versed in options afforded by the UCC can be a costly difference for a credit department.
"A lot of people don't fully understand them," said Powelson. "Once people understand how simple they are to use, I believe most people would utilize them as a tool. It's a huge issue."
Powelson will outline key points on the topic during the November 22 NACM teleconference, "UCC-1 Filings: Benefits and the Required Elements." He will break down and explain which type of filing is applicable for a particular business, the benefits of filing, the documents required and how to get started. Becoming a secured creditor can be critical for avoiding losses from doing business with a debtor who runs into financial woes, not to mention that a proper UCC filing can often help a creditor repossess materials/products in the event of a Chapter 11 bankruptcy filing.
"Establishing priority in a bankruptcy is typically the difference between getting paid and not getting paid," Powelson noted. "The utilization and understanding of secured transactions separates the credit manager from the credit professional. If you can make a marginal account secure, you can succeed where others fail. It's an incredible tool."
Brian Shappell, NACM staff writer
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Latin America was ready for its close-up at this year's FCIB Global Conference, held earlier this week at the Ritz Carlton Hotel & Resort in Key Biscayne, FL. While previous iterations of FCIB's renowned panel discussions had focused heavily on business in China, this year's session zeroed in on America's southern neighbors, most notably on countries like Mexico and Brazil, while still leaving ample time for various hot spots all over the world.
The panel discussion, the Global Conference's final session, offered attendees the chance to ask the questions that were still lingering on their minds after a full day of cutting-edge educational offerings and unparalleled networking opportunities. It also provided them with answers to previously submitted questions included in the panel agenda before the conference even began, many of which focused on very specific markets.
"This is the session where we get to answer those questions that are keeping you up at night," said panel moderator Laura Pedersen, CDCS, CICP, who also led her own session "Export Credit Management" a day prior. "It's your chance to find out what you need to know," she told a rapt group of attendees before diving into questions surrounding Latin America and the Caribbean.
Payment terms in the region were the first thing discussed, and panelists noted that there isn't necessarily a standard set of terms used regularly by companies in the region. "It's a very, very volatile market that's constantly changing," said panelist Carmen Migues, CICP, controller at Federal-Mogul Corporation. "It depends on the market conditions in the country you're dealing with, it depends on your industry, and it's very important to know your customer," she said, adding that she had seen customary payment terms stretch from cash in advance to even 120 days. Other panelists Ken Cavanagh, senior vice president of underwriting at FCIA Management Co., Inc., and James Dezell, senior vice president and U.S. practice growth leader at Marsh U.S.A., Inc., said they had seen terms stretch between 60 and 90 days, and even into 180 to 270 days in the agriculture sector.
Another broad concern within the region is how continued natural disasters could affect payment habits coming from countries like Chile and Haiti. "All of us are taking risks with natural disasters in this area. You see Chile recover fairly quickly for themselves, and then you compare it to the devastation in Haiti," said Cavanagh, highlighting the range of differences between countries in the region. However, many disasters, although initially problematic for local economies, can often contain a silver lining for affected countries and exporting companies. "Our experience is that, a lot of times, these disasters are followed by a natural economic stimulus," Cavanagh added, noting that governments often spring to action in the wake of a disaster, which can mean more investment opportunities for foreign vendors.
Regarding payment terms, the panel noted that things have been better than expected post-disaster. "I think people were expecting the worst, but I think for the most part they've been remarkably surprised by how stable things have been down there," said Dezell. Even an attendee whose company was selling in Haiti noted that they hadn't seen any change since the January 2010 earthquake. "We have one customer who seems to be sustaining quite well," they noted.
The remainder of the panel discussion spent time on risk mitigation in Mexico and alleged biases in payment practices from Venezuela's notorious CADIVI system. Attendees and panelists also discussed trends in China, India, Vietnam and the potential for positive growth in Turkey.
Look to January's Business Credit magazine for a full wrap-up of this year's FCIB Global Conference. To learn more about FCIB's educational programs, click here.
Jacob Barron, NACM staff writer
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It's been well documented that the commercial real estate sector struggled about as much as any during the recession, and its early, unimpressive recovery and prospects for a hot rebound have remained largely bleak. However, a pair of trade associations believes that may be turning around.
Studies unveiled this month by the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR) were surprisingly upbeat on commercial market prospects. Granted, both associations were lampooned for their ultra-optimistic predictions last decade that the housing and economic downturns would amount to a "soft landing." This time there at least appears to be solid rationale behind the optimism.
MBA's Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations found such loans increased 32% between the second and third quarters of 2010. A large portion of the uptick comes from growing interest in industrial properties, up 129%, and multifamily housing (condominiums, high rise apartments, etc.), a 37% bump, according to MBA statistics. Office and retail properties each saw double-digit increases, as well. Improvements have been fueled partially by "today's low interest rates that make for a very attractive borrowing environment," said MAB Vice President of Commercial Real Estate Research Jamie Woodwell. The vice president did admit that improvements to the sales and rental markets have been somewhat muted to date and the overall commercial mortgage demand remains below what would be considered normal. Apparently, not everyone is sold that the recession is over and that a double-dip will be avoided.
Meanwhile, a pair of speakers at the annual REALTORS Conference & Expo in New Orleans noted slight improvements in commercial lending with "steady improvement" inevitable. NAR Economist Lawrence Yun and Hugh Kelly, clinical professor of real estate at New York University's Schack Institute of Real Estate, tempered their optimism noting that banks are in a driver's seat, so to speak, with little stigma about turning away commercial borrowers who aren't up to snuff. Additionally, Yun noted improvements are needed in exporting activity and employment levels, both of which are expected throughout next year. A failure to realize increases in either area, as well as access to capital, are the most notable impediments to a commercial real estate resurgence in 2011 and 2012, Yun intimated.
Brian Shappell, NACM staff writer
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Citigroup Inc., following its giant banking colleagues, announced that it would begin hiring new employees to target smaller U.S. businesses. They also reiterated their continued support for the Communities at Work Fund, after providing the fund with $199 million worth of capital through a combination of equity and loans with the Calvert Foundation and Opportunity Finance Network.
Altogether, the moves are yet another recent sign from the nation's largest banks that they're hoping to revise their image as bankers to only the largest companies, and aiming to increase financing to the nation's smallest firms after receiving a rap of post-bailout criticism.
With Citi's help, the Communities at Work Fund recently approved $60 million of its nearly $200 million line for financing, all of which will be used to fuel small business lending in low-wealth and low-income U.S. communities. About $50 million of the financing has been disbursed already, and the remaining $10 million will be distributed by year's end.
"Citi is committed to helping small businesses grow and succeed," said Citi CEO Vikram Pandit. "Working with Calvert Foundation and Opportunity Finance Network, we are helping give small businesses the boost they need during challenging times. These businesses strengthen communities and spur the job creation that is essential to drive our nation's economic recovery."
Pandit's comments, and his bank's initiatives, continue to echo those of his colleagues. Bank of America announced last month that its lending to small businesses in the first nine months of the year was up by $12.6 billion over the same period last year, and that it loaned a total of $25.9 billion to small- and medium-sized businesses in the third quarter of 2010. "In this challenging economy, small and medium-sized businesses are vital to the nation's ongoing recovery. Without their help, creating new jobs will continue to be a challenge," said David Darnell, the bank's president of global commercial banking.
Other banks, such as JPMorgan Chase, have also taken steps to increase their outreach to smaller firms by hiring new bankers to focus specifically on these types of transactions and increasing issuances of Small Business Administration (SBA) loans.
Jacob Barron, NACM staff writer
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