eNews Aug 16, 2012

August 16, 2012



News Briefs

  1. Separate Studies Find Small Business Credit Quality Rising, But Credit Struggles Continue
  2. June Exports Top All-Time High
  3. Lehman Creditor Payouts to Be Higher Than in Many Bankruptcies
  4. "Sequestration" Threat Looms Large over August Recess
  5. Europe Still Has Some Bright Spots
  6. Sub-Saharan Africa Becomes Latest Trade Success Story, As Ex-Im Breaks Financing Record

 

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Separate Studies Find Small Business Credit Quality Rising, But Credit Struggles Continue

Like so much economic news in the last couple of years, small businesses seem to be on a good news-bad news roller coaster. While the credit quality of U.S.-based small businesses appears to be on the rise, so are their struggles to get approved for credit, which has created the perception that it's "not even worth trying."

Second-quarter results of the Experian/Moody's Analytics Small Business Credit Index saw a near one-point increase compared with the first quarter. The index now sits at 103.2 and marks three consecutive quarterly gains. Year-to-year, there was a sizable drop in the number of small businesses delinquent in paying debts. However, on the flip side, those considered severely delinquent seem to be having more trouble than ever getting off debt's slippery slope.

Meanwhile, the Federal Reserve Bank of New York unveiled its Small Business Borrowers Poll, which included results that indicated microloans are at peak demand right now yet remain highly difficult to garner, especially among startups. The perception is that getting approved for credit is unlikely, so many have simply stopped applying, the NY Fed speculated. The poll found that nearly 50% of those small businesses that did not apply for credit or bank loans opted not to do so out of fear of rejection. Perhaps with good reason, as only 13% of those who participated in the poll and applied in recent months received the full amount requested. Slightly more than one-third received a portion of the requested amount.

The report noted that there still seemed to be some optimism for next year's prospects, whether based on tangible signs or blind hope. Meanwhile, interviews from the poll released by the Fed seem to tangentially promote an idea near and dear to NACM—workers need to advance and expand the roles of their positions to boost their stability and the company's prospects alike.

The interviews highlighted the widely held belief that small business owners do not see smooth sailing for most of the remainder of 2012, even if they are upbeat about things being better at this time next year. As such, business owners are preparing as if credit isn't going to come their way, and seem to want employees, from sales to credit, to realize the importance of stepping out of the traditional box of their job descriptions to provide more value.

"Whatever you think cash-flow-wise you will need for your worst scenario, like the one you think is never going to happen, double it," said Allison O'Neill, a New York clothing store proprietor interviewed by the Fed. "Everyone who works here wears many hats...Everyone who's here is a sales associate and a social media manager, and a marketing manager, and an inventory specialist..."

- Brian Shappell, CBA, NACM staff writer

To view the full report, visit http://www.newyorkfed.org/smallbusiness/2012/.

Distressed Business Services

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June Exports Top All-Time High

The United States exported $185 billion in goods and services in June, according to data released by the Commerce Department, marking an all-time monthly high. The previous record, set just three months prior in March 2012, was $184.4 billion.

"Today's data shows that U.S. exports in June posted their highest level on record for the second time this year, despite challenging global economic conditions. Though much work remains to be done, the U.S. continues to make historic progress toward achieving President Obama's National Export Initiative goal of doubling our exports by the end of 2014," said Acting U.S. Commerce Secretary Rebecca Blank. "We also remain on track toward exceeding last year's export total of $2.1 trillion."

Over the last 12 months, U.S. exports of goods and services have totaled $2.165 trillion, which exceeds the 2009 total by 37.1%. Since then, U.S. exports have been growing at an annualized rate of 13.5%. Major export markets with the largest annualized increases in purchases from the U.S. were Panama (38.1%), Turkey (29.5%), Argentina (29.1%), Hong Kong (28.3%), Chile (28.1%), Russia (26.4%), Honduras (26.1%), Peru (25.5%), Brazil (22.7%) and Ecuador (22.1%).

Despite the reliable positivity of exports over the last several months, NACM Economist Chris Kuehl, PhD noted that a number of rare factors helped boost June's figures, and that this type of growth might soon be coming to an end. "The one-off developments include a dramatic burst of activity in a couple of traditionally volatile areas—pharmaceuticals and gems. Together these sectors accounted for half the consumer goods gain," said Kuehl. "If one looks at these motivators for the good month, it is pretty obvious that this is not all that sustainable."

Placing U.S. export figures in greater risk is the fact that other major export countries have seen drastic declines. "If there are export declines in Germany, Japan, Korea, China and Brazil," asked Kuehl, "can the U.S. continue to be the outlier that is seeing expansion?"

- Jacob Barron, CICP, NACM staff writer

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 Lehman Creditor Payouts to Be Higher Than in Many Bankruptcies

In December 2011, when Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York approved the last in a series of reorganization plans by Lehman Brothers, who filed the largest Chapter 11 bankruptcy filing in U.S. history over three years ago, Lowenstein Sandler PC attorney Bruce Nathan, Esq. noted it was the end of the beginning. Those proved to be sage words as Lehman was in the news again and, unlike the situation for many months, was moving forward rather than being stuck in neutral.

Lehman speculated it would be earning in excess of $50 billion over the next four years in the commercial real estate industry and that sales related to the sector would help it pay creditors stung by its 2008 Chapter 11 filing for some 18 cents on the dollar on average. Additionally, it has been reported that the amount of Lehman's first batch of creditor payments this spring exceeded expectations and predictions.

Lehman, which sank dramatically on outsized risky behavior during the residential real estate boom, made new bets on commercial real estate with its 2012 purchase of the remaining assets of Archstone, Inc., a major player in the apartment rental sub-industry. With a public still stung by a freefall in home prices and difficulty in securing housing loans, demand for rental housing continues to spike in many U.S. markets, potentially allowing Lehman to capitalize and raise more money than was estimated even at the time of their plan confirmation less than a year ago.

Granted, as Nathan previously pointed out, there is still "a long way to go," and creditors desperate for cash at present may well continue to explore what has been described as an active trade claims market.

- Brian Shappell, CBA, NACM staff writer

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"Sequestration" Threat Looms Large over August Recess

When Congress returns from the August recess on September 10, it will have no shortage of urgent items on its agenda. The biggest of these will be finding a way around the upcoming "fiscal cliff" over which the country is scheduled to plummet on January 2, 2013.

Included in the terms of last year's debt ceiling agreement was a requirement for future spending cuts, should a compromise not be reached beforehand. These looming cuts, commonly referred to as "sequestration," were designed to motivate congressional negotiators to compromise on other less severe cuts and possible revenue increases.

The threat, however, wasn't strong enough to overcome the depth of congressional disagreement. The "Super Committee" charged with reaching a compromise was unable to find at least $1.5 trillion in savings, and therefore was unable to pass the provisions in a bill by the December 23, 2011 deadline, that triggers automatic across-the-board cuts when sequestration takes effect on January 2, 2013.

There are notable exceptions to the cuts, including Social Security, Medicaid, Medicare and veterans' pay levels, but members of both parties are now trying to determine how the scheduled cuts can be avoided—with a particular emphasis on trying to avoid military cuts. Currently, the law stipulates that slightly more than $100 billion be cut in January 2013, with an estimated $50 billion targeted for the Department of Defense.

These funding levels are critical points of discussion in protecting the Department of Defense where any reduction in defense spending could impact national security, along with estimated hundreds of thousands of contracting jobs associated with defense efforts.

Just before departing for the August recess, House and Senate leaders announced that they reached an agreement on how to handle funding for Fiscal Year 2013 that begins October 1, 2012. A six-month Continuing Resolution (CR) will keep the government running after September, and will probably be the first order of business upon Congress' return. This will delay discussions about how sequestration can be avoided until after the November elections.

Other pressing matters awaiting Congress on September 10 include a comprehensive Farm Bill, which lawmakers could not agree to before leaving, and the approval of permanent normal trade relations (PNTR) with Russia in the wake of that country's World Trade Organization (WTO) accession.

- Jacob Barron, CICP, NACM staff writer

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Europe Still Has Some Bright Spots

At a glance, the mainstream press reporting might lead a reader to believe all of the European Union is circling the economic drain with little or no hope of recovery any time soon. While there have been well-documented and well-founded areas with problems, namely Greece and Spain, as well as an impact on trading partners throughout the globe, there are some European nations still holding their own and more.

Statistics indicate the German economy is back in a growth pattern, albeit at a lackluster 0.3%, after a few signs of weakness. There also are several EU members and nearby neighbors who have managed the crisis well enough to avoid recession and deserve note, argued NACM Economist Chris Kuehl, PhD.

"The Swedes are also displaying significant economic progress based on solid export activity and a domestic economic surge that stems from the lowered tax burden. Poland continues to prosper with its own burgeoning internal economy and continues to benefit from being the buffer between the Russians and those that want to do business there without getting too close. Even the Irish are starting to make some progress on their own financial mess and now appear to have returned to being just poor, not poor and in distress."

Granted, even when upbeat, Kuehl admitted that slight steps backward by Norway and the Netherlands, and a significant downturn in France have left a mighty weight of responsibility for sustaining the euro almost solely on the shoulders of the German economy for the time being.

"It was only about a year ago that many assumed France would combine with Germany to rescue the rest of the euro zone, and now there are some who assume that at some point France will be the one being rescued. This is a remote possibility at this juncture, but it is clear that France is far weaker than it appeared to be just six months ago," Kuehl noted. "To hold the euro zone together, the Germans would need to be back to nearly 2% growth, and that just doesn't seem likely this year."

- Brian Shappell, CBA, NACM staff writer

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The Wall Street Journal, Bloomberg, Businessweek and the LA Timesto name just a few!

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Sub-Saharan Africa Becomes Latest Trade Success Story, As Ex-Im Breaks Financing Record

Over the last decade, six of the world's ten fastest-growing economies were located in sub-Saharan Africa. As such, recent efforts by U.S. officials to support exports have focused strongly on the region's ongoing development as a trade entity.

The Export-Import Bank (Ex-Im) recently announced the wages of its efforts to finance transactions in sub-Saharan Africa, noting that in the first three quarters of Fiscal Year 2012, the bank approved an historic $1.5 billion in financing to support U.S. exports there. The previous record of $1.4 billion was set over the course of the entire 2011 fiscal year, meaning the 2012 total will be even greater with one quarter left to go.

"Proportionately, Ex-Im Bank supports more U.S. exports to sub-Saharan Africa than it does to the world at large. Last year, we financed 6.7% of U.S. exports to this region. With this new record in sub-Saharan authorizations already achieved in FY2011, we are on target to increase that percentage," said Ex-Im Chairman and President Fred Hochberg. "Sub-Saharan Africa is a priority region because many countries have strong prospects for long-term economic growth and infrastructure development. We want to help more U.S. exporters increase their sales to this emerging region."

Export growth in several sectors, including machinery, vehicles and parts, commodities and aircraft, contributed to the increase. Two of the top markets for U.S. exports to the region are South Africa and Nigeria, both of which are considered by Ex-Im to be key country markets.

This year so far, where the bank's insurance policies are concerned, Ex-Im expanded its coverage in four sub-Saharan African countries: Cameroon (opened for long-term in the public sector), Ethiopia (opened for short-term and medium-term in both the public and private sectors), Tanzania (opened for long-term in the public sector) and Angola (opened for long-term in the private sector). The cover policies changes were approved by the Bank's board of directors, following upon country-risk upgrades determined through an interagency country-risk review process.

- Jacob Barron, CICP, NACM staff writer

To learn more about how to use exports to grow your company, visit FCIB's website at www.fcibglobal.com. For more information on Ex-Im Bank's export support programs, be sure to tune into FCIB's upcoming webinar, "Financial Tools for Export Success," led by Sharyn Koenig, director of Ex-Im's southeast regional export finance center and minority and women-owned business outreach.

 

To view past eNews issues or to visit the NACM Archives, click here.

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