January 17, 2013

News Briefs

  1. U.S. Takes First Steps toward New Agreement on International Trade in Services
  2. EU to Vote This Week on Ratings Agency Restrictions
  3. Fitch Threatens Downgrade on Government (In)Action One Week after Lauding U.S. Corporations
  4. Ex-Im on Track for Another Record Year after Strong First Quarter
  5. Yet Another European Music Retailer Slumps to Insolvency
  6. Treasury Announces TALF Program Paid in Full


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U.S. Takes First Steps toward New Agreement on International Trade in Services

The Obama Administration took a vital step this week toward a new global agreement on international trade in services. U.S. Trade Representative Ron Kirk notified Congress of the Administration's intent to enter into negotiations for a new International Services Agreement (ISA), beginning in Geneva, Switzerland later this year with a group of 20 other trading partners, comprising nearly two-thirds of all global trade in services.

The U.S. is currently the world's largest services trader, running a $178.5 billion surplus in the sector in 2011. Despite this, however, a recent study by the Peterson Institute for International Economics cited by Kirk in his letter to Congress estimated that tradable services are still five times less likely to be exported than manufactured products.

"If business services achieved the same export potential as manufactured goods globally, U.S. exports could increase by as much as $800 billion," said Kirk. "To begin to realize this potential, we need to surmount a range of barriers that lock out, constrain or disrupt the international supply of services. An ambitious, high-standard ISA presents a tremendous opportunity to remove these impediments and boost U.S. economic growth and support additional jobs."

The announcement drew cheers from business groups as well as from a bipartisan group of key legislators, signaling that partisan bickering won't prevent the Administration from pushing its trade agenda.

"The ISA is a critical trade priority for me because it holds great promise for job creation in all sectors of the U.S. economy, including manufacturing and agriculture, as well as services, and can help rebuild momentum for a global agenda of trade liberalization," said House Ways and Means Committee Chairman Dave Camp (R-MI), whose committee has broad jurisdiction that includes international trade. "We must now go about the work of reducing the substantial barriers that U.S. services exporters face around the globe."

"The U.S. leads the world in exporting services—and to stay competitive, we need to keep it that way," said Senate Finance Committee Chairman Max Baucus (D-MT) in a statement welcoming Kirk's announcement. "As the global economy evolves, services exports like tourism and transportation must be an important part of our trade agenda to create jobs and strengthen our economy here at home."

An ISA would directly benefit the services sector, but would also have positive effects on manufacturing and agriculture, as these industries engage companies in the financial services, telecommunications and other industries to run their businesses efficiently. To learn more about how to make the most of your company's exports, visit FCIB's website.

- Jacob Barron, CICP, NACM staff writer

How's the Month Going for You?

Publications like the Wall Street Journal, Bloomberg and Businessweek want to know!

The monthly Credit Managers' Index, as reported by you, clues everyone into what's happening and about to happen in the economy. Reinforce the importance of the credit function, and help yourself. The survey only takes a few minutes to complete and builds toward recertification points.

The next survey is open January 21-25! Simply go to http://web.nacm.org/cmi/cmi.asp at any point during these dates.

Need a reminder? Sign up for the CMI reminder email, sent when the survey opens each month.

EU to Vote This Week on Ratings Agency Restrictions

European Union member nations voted January 16 to enact restrictions on U.S.-based credit ratings agencies. While EU officials call it a boon for transparency and better quality in the ratings, the move to some more resembles a case of information censorship or shooting the messenger.

EU members, as they were widely expected to do, approved legislation drafted late last year that restricts the timetable in which any of the three agencies—Moody's Investors Service, Standard & Poor's and Fitch Ratings—could release news of sovereign credit ratings of any EU member. The regulations 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 part of the purpose is designed to "reduce the reliance on ratings agencies" and is a direct response to downgrades of its member nations which are 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 breakup of the euro zone," a recent EU statement 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 are wary of the move, characterizing it as an extreme reaction. Ed Altman, PhD, 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."

Some nations, most notably France, have not even been damaged in terms of borrowing rates and yields following downgrades from multiple agencies in 2012.

- Brian Shappell, CBA, NACM staff writer

FCIB Announces Program for 2013 International Credit and Risk Management Summit

When: May 12-14
Where:  The Corinthia Hotel Prague in Prague, Czech Republic

This year's sessions include:

• Basel III and the Impact on Working Capital Requirements, Letters of Credit and
• Concurrent Interactive Streams
   o The Evolution of the Internet and Its Effects on e-Commerce
   o Different Security Methods across Europe and Best Practices
   o Compliance and Ethics in a Corporate Society: Money Laundering, Bribes, Adherence
      to Sovereign Countries Rules and Regulations

• Risk Awareness in Today's Global Trading Conditions
• Counterparty Risk
• The Credit Department As a Profit Centre

For the full program and current speakers list, click here.

To registration now and take advantage of the Early Bird rate, click here.

To book your hotel room at the special conference rate, click here.

Fitch Threatens Downgrade on Government (In)Action One Week after Lauding U.S. Corporations

Fitch Ratings could hardly have been more positive on the outlook for U.S.-based corporations and their creditworthiness last week. The agency seemed to gush over improving prospects for GDP growth domestically as well as healthy operating margins, solid balance sheets and extended maturity profiles. However, it wasn't so Pollyannaish when it came to the U.S. leadership and lawmakers.

Fitch threw out a thinly-veiled threat aimed at Capitol Hill this week: settle the debt crisis without brinksmanship or lose the prestigious "AAA" sovereign credit rating. Apparently unmoved by President Barack Obama's "We are not a deadbeat nation" stump, the message was clear that failure or even a "repeat of the August 2011 debt ceiling crisis" would inspire pessimism that the new Congress could work together in a meaningful way and that the risk of the federal government not honoring its obligations in a timely fashion would rise.

"In the absence of an agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current negative outlook on the 'AAA' rating is likely to be resolved with a downgrade later this year even if another debt ceiling crisis is averted," Fitch's statement noted. "In Fitch's opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling, while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible."

Standard & Poor's infamously downgraded the United States one notch on overall debt issues, which Fitch also mentioned in its statement on the debt ceiling in 2012. Though Moody's Investment Services has registered similar concerns about high debt and Congressional partisan behavior and brinksmanship, it has maintained the U.S. at the high-level rating.

- Brian Shappell, CBA, NACM staff writer

CBF Designation Requirement Changes

The NACM Education Department has made a change to the Credit Business Fellow (CBF) designation requirements. In an effort to address the changing needs of today's credit professionals, the Financial Statements: Interpretation and Credit Risk Assessment course has been eliminated from the CBF designation requirements. Only two courses are now required to qualify for the CBF exam: Business Law and Credit Law.

Please contact the Education Department at 410-740-5560 or education_info@nacm.org with any questions about pursuing your professional designation.

Ex-Im on Track for Another Record Year after Strong First Quarter

Fiscal Year 2013 is off to a good start for the Export-Import Bank of the United States (Ex-Im) as authorizations for the first quarter jumped by 75% over last year's figures.

Tthe bank approved $7.45 billion in authorizations in Q1, up from $4.25 billion during the same quarter of fiscal year 2012. The top industry sector in the bank's portfolio was infrastructure, with concentrations in manufacturing, aircraft, information and communications service providers and power projects.

"These robust first quarter numbers show that we are on track to have another strong year at Ex-Im Bank," said Chairman and President Fred Hochberg. "With more than $7 billion already authorized, the Bank remains committed to reaching out to more small and medium-sized business owners and helping create more jobs through exports."

Top destination markets for the first quarter of FY2013 included India, keeping with FY2012's trend of Asia being the bank's largest region. Other top destinations for Q1 were Germany, Russia and Poland. Small business authorizations also jumped, although not by as much as overall authorizations, rising from $789 million in Q1 of FY2012 to $1.2 billion this year and marking a 49% increase.

Exports in total are up by 38.7% since 2009, hitting $182.6 billion last November and a total of $2.189 trillion for the 12 months before that. Among major export markets, the top ten buying countries with the largest annualized increase in purchases of U.S. goods were, when compared to 2009, Panama (32.1%), Chile (26.3%), Russia (25.3%), Argentina (23.9%), Peru (23.9%), Venezuela (22.9%), Turkey (22.7%), United Arab Emirates (22.5%), Hong Kong (20.1%) and South Africa (20%).

FY2013 would be the fifth consecutive record-breaking year should Ex-Im's authorization trends continue on the path set by the first quarter.

- Jacob Barron, CICP, NACM staff writer

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Yet Another European Music Retailer Slumps to Insolvency

In last week's eNews, the problems of France's Virgin MegaStores facing a troubled economy and massive changes to the music sales business model were outlined as a cautionary tale for anyone selling in that sphere of the retail industry. Within a week, another one bites the dust, so to speak, in what seems to have become a trend for an industry at the crossroads.

British-based chain HMV filed for the United Kingdom's version of bankruptcy (administration) as the UK's woes are compounded by economic and unemployment issues both domestically and from the intertwined European Union, as well as industry changes. Unemployment in Europe is near 12%, and key buying demographics are being hit particularly hard. While a member of the European Union, Britain is separated from the other members in a number of ways including being on a different currency (the pound). Still, like the rest of the EU, Britain's own economy is facing meager growth, tracking below 1% at last check, and the real possibility of another recession in 2013.

Regarding industry changes, like Virgin, HMV was losing significant market share thanks in large part to online retailers like Amazon and various types of downloading services from other competitors. The list of victim companies that did not alter their business models continued to grow, as downloading and online shopping/shipping of music, as well as books, gained wide acceptance and is a trend unlikely to reverse. At the time of filing this week, HMV had about 240 retail stores. Though most were in the U.K., there were also locations in Asia.

- Brian Shappell, CBA, NACM staff writer

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Treasury Announces TALF Program Paid in Full

The Treasury Department announced this week that it had received full repayment on its investment through the Term Asset-backed-securities Lending Facility (TALF), a program launched in November 2008 in order to unclog credit markets for consumers and businesses during the financial crisis.

Under TALF, the Federal Reserve Bank of New York lent funds to investors in highly rated asset-backed securities and commercial mortgage-backed securities. By encouraging the issuance of these types of securities, which are backed by consumer and business loans, TALF aimed to support the economy by increasing credit availability to both consumers and businesses. All in all, TALF supported the issuance of nearly 900,000 small business loans, 150,000 other business loans and millions of credit card loans.

"TALF helped finance millions of new loans to consumers and businesses after the credit markets froze during the financial crisis," said Assistant Secretary for Financial Stability Timothy Massad. "Now, this program is being wound down at a profit for taxpayers."

Treasury originally pledged $20 billion in credit protection to investors through the Troubled Asset Relief Program (TARP) against potential losses on TALF loans. In light of repayments and the number of TALF loans outstanding, Treasury's credit protection commitment subsequently dropped to $4.3 billion in June 2010 and to $1.4 billion in June 2012.

This week, accumulated fees collected through TALF topped $856 million, exceeding the $556 million total principal amount of TALF loans outstanding, deaming the Treasury's credit protection commitment no longer necessary.

While TALF has turned a profit for taxpayers, Treasury is still winding down TARP as a whole. Overall, nearly 93% of the $418 billion in funds disbursed for TARP have been recovered through repayments and other income.

- Jacob Barron, CICP, NACM staff writer

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