August 23, 2012
NACM Mourns the Loss of a Best Friend
It is with a heavy heart that we inform you that our good friend, Tom Corbett, died suddenly while at home on Tuesday, August 21. Tom was vice president/Trade Credit Practice for Marsh USA.
Tom was a friend to so many credit professionals and was a strong advocate for the entire National Association of Credit Management organization, including its Affiliates and FCIB—the association for executives in Finance, Credit and International Business.
We will always remember Tom’s sense of humor, depth of knowledge and awesome presence as he helped, mentored, guided and gently led so many of us in our search for professional excellence. Tom touched so many of us; we are grateful to have known him and are proud that he was our friend. We will miss him.
For the better part of the year, NACM and contributors like Lowenstein Sandler PC's Bruce Nathan, Esq. have been warning of the potential acceleration of municipal (Chapter 9) bankruptcy as an option for debt-hobbled communities and the potential downstream effects such filings could pose. Within the last week, two notable outfits and at least one mega-investor have chimed in on the topic of municipal defaults, either directly or indirectly, all thinly veiling deep concern for creditors and municipal bondholders.
A new report from the Federal Reserve of New York said its analysts found "municipal defaults are far more common than frequently cited statistics suggest." While some have attacked the assertions of the report as misleading, it has certainly laid the foundation to rile the municipal bond market, thought to be a bit of a safe haven in the past.
The row comes on the heels of a Moody's Investors Services release in which the ratings agency noted it would be reviewing, with additional depth, nearly 100 California municipalities for potential downgrades. Moody's intimated that many communities are doomed fiscally as a result of instability in the residential real estate market, struggles to keep up with pension and other employee entitlements and state legal limitations that would prevent what some Moody's analysts see as necessary tax hikes. In addition, Moody's speculated that a California law that mandates a 60-day mediation between communities and creditors before a Chapter 9 filing can legally go through almost encourages or "condones" partial and/or late payments to bondholders.
Meanwhile, billionaire investor Warren Buffet, who serves as chairman of Berkshire Hathaway, Inc., recently added to the discussion with predictions of escalating Chapter 9 filings. To wit, Berkshire is cutting in half its exposure (estimated at $16 billion) based on the credit performance of U.S. municipalities and states.
This all follows a well-publicized trio of Chapter 9 filings in California this year in Stockton, San Bernardino and Mammoth Lakes, as well as previous filings in Central Falls, RI, Jefferson County, AL and multiple failed attempts out of Harrisburg, PA in 2011. Nathan is among experts who have repeatedly predicted things would get worse before they got better regarding the municipal bankruptcy filing pace, as issues including the down economy and entitlement and health care costs continue to weigh down American cities and counties.
- Brian Shappell, CBA, NACM staff writer
Nathan will discuss Chapter 9 bankruptcy in an NACM teleconference on October 22. For more information, or to register, click here.
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As noted in the story above, concern is growing—and perhaps it should be—among market-watchers over debt struggles and credit quality in U.S. communities. The long list of problems in California municipalities and others mentioned in regards to bankruptcy filings doesn't even take into account the recurring speculation that it could become a real option for cities like Detroit, MI and Providence, RI, among others in the 26 states where Chapter 9 filing is allowed by law.
This week, adding to the concern, was a focus on the states that are having significant struggles as well. Standard & Poor's confirmed that it is taking a deep look at Illinois' credit rating because the state government has failed to address a public retirement system that isn't appropriately funded and, like in many states, is weighing heavily on the budget. Moody's Investment Services quietly downgraded its Illinois rating months ago, and currently holds Illinois at the lowest credit reading of the states it rates. What's somewhat troubling is that another new study ranking the credit conditions of all U.S. states rated seven as being worse-off than Illinois.
CardRatings.com's analysis of the credit profiles based on both business and consumer factors in all 50 U.S. states found that many are struggling with problems such as low credit scores, reeling real estate issues and high unemployment. Several of the top five—Nevada, Georgia, Florida, Arizona and, unsurprisingly, California—also have problems with public worker health care and pension costs as mentioned in previous NACM stories. By comparison, North Dakota, Vermont, South Dakota, Montana and Iowa lead the charge with the best ratings in the CardRatings.com study.
"I think states in the lower credit tier could learn quite a bit from what the states in the upper tier are doing right," said CardRatings.com Founder Curtis Arnold. He said that the stark difference in practices between the upper two tiers should be noted and "should be food for thought for anyone considering a move or business venture."
- Brian Shappell, CBA, NACM staff writer
Earn Your Internationally-Acclaimed Lifetime CICP Designation Before 2012 Ends
Registration for FCIB's International Credit & Risk Management Online Coursesm, leading to the prestigious lifetime Certified International Credit Professional (CICP) designation, closes September 4, 2012.
Register now, and in 13 weeks, complete this comprehensive web-based course that drills down to the core of international credit and risk management to earn your CICP. From entry- to senior-level status, over 1,400 professionals have used this opportunity for unparalleled development, career advancement and peer-to-peer interaction, thereby helping them to build, diversify and strengthen their professional network.
To learn more about the International Credit & Risk Management Online Coursesm, click here.
On August 22, Russia officially became the 156th member of the World Trade Organization (WTO).
This means that, for the time being, Russia is within its rights to discriminate against U.S. exporters due to the fact that Congress adjourned for its August recess without approving permanent normal trade relations (PNTR) with the global trade body's newest member. Under WTO rules, Russia can restrict U.S. access to the markets it agreed to open under the terms of its accession agreement until American lawmakers normalize trade relations, which won't happen until Congress returns to work on September 10 at the earliest.
Business groups marked the occasion of Russia's WTO membership with calls on Congress to immediately approve PNTR, or risk costing U.S. exporters billions in potential profits. "Russia’s accession to the WTO is welcome news, and more than 150 countries will benefit as Russia today enacts reforms to open its market, protect intellectual property and strengthen the rule of law," said U.S. Chamber of Commerce President and CEO Thomas Donohue. "The whole world is ready—except the United States. Until Congress approves PNTR with Russia, Moscow will be free to deny the United States the full benefits of its reforms."
"By standing still on trade, America risks being left behind once again. Because of our inaction on PNTR, European and Asian companies have won a head start in the Russian market," he added.
Observers also urged lawmakers to carve time out of their busy September schedule to address PNTR immediately upon their return to Washington. "Congress and the Administration must not waste time during the window of opportunity available in September to work together to approve PNTR," said Randi Levinas, executive director of the Coalition for U.S.-Russia Trade. "Russia is an attractive, $400 billion import market that spans nine time zones with a growing middle class. To update its infrastructure and industrial base, Russia has the choice to turn to other WTO members or it can turn to the U.S. We are urging a strong bipartisan vote on Russia PNTR to reflect the example set by the Ways and Means and Finance Committees last month."
Bills approving PNTR are pending in both chambers of Congress. According to the President's Export Council, U.S. exports of goods and services to Russia—which reached an estimated $11 billion in 2011—could double or triple now that Russia has joined the WTO.
- Jacob Barron, CICP, NACM staff writer
Make Better Credit Decisions with Industry Credit Groups
Credit groups are an effective management tool, allowing credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data about the most recent payment practices. The purpose of exchanging information is to help group members separate fact from fiction, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
- Provide unparalleled networking opportunities
- Assist in the exchange of credit information on common customers
- Facilitate the receipt and analysis of information to make unilateral credit decisions
- Provide a forum to discuss the latest developments on credit department procedures,
equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
The need to advance the role of the credit professional in companies domestically and internationally is beginning to pick up steam and emerge as a trend in the credit industry. Whether at events, such as the recent FCIB conferences in Chicago and Hamburg or at the 2012 Credit Congress in Dallas, empowering the credit professional to do more is certainly a topic of discussion, as it should be.
"Times are tough; business is tough. We all need to be contributing more," said Angela Bradbury, ICCE, group credit manager at UK facility of Denver-based Innospec Inc., and moderator of the first of five upcoming FCIB roundtables focused on "The Credit Department As a Profit Centre." She added that there are two kinds of credit managers out there right now: "Those with flair who are getting involved in the business [and big decisions] and the others who are operating in a very restrictive space. It's not about going in the CFO's office shouting and screaming, it's about showing you're an indispensible service. It's not about making life difficult or easier, it's about being a bigger part of the business' bottom line."
Bradbury, like 2012 NACM Mentor of the Year Larry O'Brien, CCE, ICCE and a growing group of others, told NACM that too many credit managers don't push the agenda and confirm that his/her outlook and goals are still in line with those of upper management, the finance people or even sales. In short, it is time for credit professionals to get more involved in processes and show the value they bring rather than sitting in an office waiting for things to happen to them or simply deciding "yes or no" on an application.
"The whole principle of what we're trying to achieve is to empower the credit manager to be able to go back and say, 'this is where my worth is, this is where we are adding to the bottom line'," she noted. "This isn't going to be the easiest thing we've ever done. It's going to challenge how some people are thinking. But it's not about winning points or scoring a home run, it's about being honest about expectations and what you want to happen and making sure it's aligned with the business."
The "Credit Department As a Profit Centre" roundtables begin on September 13 in London, and are designed to get credit professionals talking about how to sell their department's value to others in a company, the internal public relations it takes for this to work and how to assess the credit and risk expectations that exist at your company (and how to react to them), among other topics. The subsequent roundtables in this FCIB series take place this fall in Amsterdam, Brussels, Zurich and Dusseldorf.
- Brian Shappell, CBA, NACM staff writer
Best-in-Class Service from NACM's Mechanic's Lien and Bond Services (MLBS)
MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
Under the terms of a settlement reached last month, but still not approved, in a case between Visa and MasterCard and a group of U.S. merchants, card-accepting businesses could soon be able to pass on their processing cost to their buyers.
This, at first, sounds like a net positive for merchants. Interchange fees are regularly cited as the reason why companies don't accept credit cards, since it must currently be paid solely by the seller and cuts 2-4% out of their profit. Being able to pass this fee down to the buyer via a surcharge might make accepting credit cards a much more profitable proposition. "What I hear from NACM members is that it eats into the profitability of the sale," noted Scott Blakeley, Esq. of Blakeley & Blakeley, LLP, a commercial law firm based in California. "Their biggest pushback in accommodating customers wanting to use credit cards has been this transaction fee."
Many merchants, most of them major retailers, have shown strong opposition to the settlement because it lacks a mechanism to increase transparency in the way these fees are set, but court approval might be inevitable, probably sometime in early 2013. Still, a number of uncertainties remain, even if the settlement goes into effect and merchants begin to pass on their interchange fees.
Visa and MasterCard represent the overwhelming majority of card transactions in the U.S., but they're not the only games in town. "American Express and Discover weren't named in the suit," said Ron Clifford, Esq., an associate attorney at Blakeley's firm, noting that some idiosyncrasies in American Express' acceptance agreements might create conflicts, should merchants eventually begin to surcharge their customers.
"In the agreements with their merchants there are two prongs that become relevant here," said Clifford. "American Express does not allow surcharging and it requires similar treatment among other forms of payment," he noted. "If you surcharge on Visa and MasterCard buyers, you would be having different terms with similar forms of payment. Passing along that fee would be a violation of the terms of the American Express agreement."
So, should Visa and MasterCard eventually even allow merchants to surcharge, doing so could put them at odds with other card companies, including one as closely associated with business transactions as American Express. "That's the sticking point with AmEx, and it hasn't been resolved," said Clifford.
Other issues could arise in other aspects of card acceptance, and companies will have to carefully consider all of them before deciding to take advantage of whatever the settlement might eventually offer.
- Jacob Barron, CICP, NACM staff writer
For an in-depth look at the Visa/MasterCard settlement, check out the upcoming September/October issue of Business Credit, which will feature this topic.
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The United States took a break this week from challenging China's often criticized trade practices to dispute Argentina's import licensing requirements through the World Trade Organization (WTO). These licensing agreements, coupled with some other unorthodox regulations, have the effect of unfairly restricting U.S. exports, according to U.S. Trade Representative Ron Kirk.
"Argentina's protectionist measures adversely affect a broad segment of U.S. industry, which exports billions of dollars in goods each year to Argentina. These exports support jobs and businesses here at home," said Ambassador Kirk. "The Obama Administration insists that all of our trading partners play by the rules and uphold their WTO obligations so that American workers receive the benefits negotiated in our agreements."
Since 2008, Argentina has greatly expanded its list of products subject to non-automatic import licensing requirements, which are required for approximately 600 eight-digit tariff lines in Argentina's goods schedule. Affected products include laptops, home appliances, air conditioners, machinery and tools, autos and auto parts, plastics, chemicals, textiles and apparel and paper products. Furthermore, earlier this year in February, Argentina adopted an additional generic licensing requirement that applies to all imports of goods into the country.
In addition to broadly abusing these licensing requirements, the U.S. alleges that Argentina further disadvantages American exports by requiring importers to agree to export as much as they import, or undertake other burdensome commitments in exchange for the authorization to import goods.
The U.S. has requested consultations with the Argentine government, which are the first step in the WTO dispute settlement process. Japan also requested WTO consultations with Argentina on the same day as the U.S. The European Union did so in May.
- Jacob Barron, CICP, NACM staff writer
To learn more about how to grow your company through exports, visit the Finance, Credit and International Business Association's website.
To view past eNews issues or to visit the NACM Archives, click here.