February 20, 2014
Although the European alternative energy industry held on for quite a bit longer than its US-based counterpart, it is now experiencing a spike of insolvencies that is unlikely to stop anytime soon. Like that of the US, the European sector is contending with lower demand amid outsized supply, extremely aggressive pricing from Asian competitors and reduced government subsidies, all at the same time.
"You see it already. Everything linked to alternative energy is having difficult times these days," said Freddy Van den Spiegel, chief economist and director of public affairs at BNP Paribas Fortis. "That sector was really growing very quickly thanks to government support and plans to increase renewable energy by 2020 as a significant part of total energy. But, given the budget situation in many [EU] states, the subsidies have been reduced, even in Germany and Belgium. Some of these new companies don't have a business model anymore given the financials."
At the beginning of the year, solar developer S.A.G. Solarstrom attempted a self-imposed insolvency restructuring, but is now going through more typical European insolvency proceedings, which yield far fewer restructuring success stories than even the US Chapter 11 bankruptcy system. Also entering insolvency this year so far are Wirsol Solar Energie GmbH and wind energy-focused Prokon Regenerative Energien GmbH. Meanwhile, Robert Bosch GmbH opted to shed its majority stake in aleo solar AG, leaving liquidation the only option for the solar module manufacturer.
While EU-based alternative energy certainly bears watching due to various instabilities, it does not mean the sector is bereft of opportunities, especially down the road. Those who survive the shakeout by putting out top-quality products and without overreliance on government subsidies will be well positioned when a market with fewer competitors rebounds.
"The alternative energy and renewable debate will continue," said Van den Spiegel. "Some of these companies, after mergers and acquisitions, will come up with technologies that are sustainable. I have confidence in the sector, but certainty in the next two to three years it will be tougher times."
- Brian Shappell, CBA, CICP, NACM staff writer
Van den Spiegel will be among the featured speakers at FCIBâ€™s Annual International Credit & Risk Management Summit in Munich. For more information on the May event or to register, click here.
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The Federal Reserve this week closed a gaping loophole that previously allowed large foreign banks to sidestep the same requirements as their US-based counterparts.
On February 18, the Fed approved a final rule that strengthens the supervision and regulation of large US bank holding companies as well as large foreign banks, which will now face many of the same liquidity, risk management and capital requirements that apply to the largest US financial institutions. Specifically the rule requires foreign banking organizations with US non-branch assets of $50 billion or more to establish a US intermediate holding company over their US subsidiaries, which will then be subject generally to the same risk-based and leverage capital standards applicable to other US bank holding companies.
"As the financial crisis demonstrated, the sudden failure or near failure of large financial institutions can have destabilizing effects on the financial system and harm the broader economy," Federal Reserve Chair Janet Yellen said. "And, as the crisis also highlighted, the traditional framework for supervising and regulating major financial institutions and assessing risks contained material weaknesses. The final rule addresses these sources of vulnerability."
Essentially, what the new rule means for large financial institutions that have their headquarters in countries other than the USâ€”like Deutsche Bank AG, Credit Suisse, UBS, Barclays and othersâ€”is that they'll have to raise billions of dollars in capital in order to keep their US operations in compliance. In addition to having to hold a minimum level of capital in order to buffer against potential financial crises, these firms' new US-based holding companies will also be subject to regular stress tests by the Fed and will have to acquire a minimum amount of easily-sold assets so that they can quickly raise cash in a period of stress.
This will be a major shift for many foreign banking operations, many of which have been allowed to operate in the US with far less capital than their American counterparts, meaning that their operational costs were lower and that they had a competitive advantage over US financial titans like Goldman Sachs and Morgan Stanley. The Fed's new rule places much stricter requirements on these foreign institutions, forcing them to hold capital in reserve equal to about 4% of their assets. For the 15 to 20 firms that the Fed expects to be affected by this rule, some of which operate at negative capital ratios wherein an institution's risk-weighted assets greatly exceed its capital held in reserve, this could mean having to pour billions into their new holding companies in order to continue operating in the US.
Compliance with most of the rule for foreign institutions will be required by July 1, 2016, and the 4% reserve requirement won't apply until 2018.
- Jacob Barron, CICP, NACM staff writer
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Though continually pushing international trade as a vehicle for growth since late in his first term in office, President Barack Obama continues to encounter obstacles to finalizing key free trade agreements. After the once slam-dunk Trans Pacific Partnership (TPP) negotiations experienced delays because of concerns that the United States and Japan were portrayed as being greedy, secretive and too corporate-friendly, there are now increasing problems with the second of the Obama Administrationâ€™s top trade priorities, the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.
US Trade Representative Michael Froman and EU Trade Commissioner Karel De Gucht met this month in advance of more formal negotiations in Brussels on March 10 and March 26, the latter of which Obama will attend. Froman was somewhat vague in his statements afterwards, continuing the typical bluster trade officials have shown publicly following recent talks. "We discussed how we will meet our joint objective of eliminating tariffs on all goods we trade between each other, reducing unnecessary regulatory barriers to trade while maintaining appropriate levels of health, safety and environmental protection, and expanding transatlantic opportunities for our service providers," Froman said. "We both see opportunities to make substantial progress in the coming months, as well as some challenges."
For his part, De Gucht was more critical publicly, saying the biggest challenges were still ahead and that progress has not been fast enough to date. The two sides seem united in projecting that these negotiations are not being conducted in secret, an assertion with which a large and growing number of critics disagree. Meanwhile, the US is still being skewered over the perceived lack of transparency involved in the TPP talks. In recent days, more than half of the dozen nations involved in the TPP negotiation signed an open letter calling for the full TPP text to be released to the public before it is finalized. The US was not one of them.
Beyond issues with the innerworkings of either trade pact, the president may not have enough support at home to get such measures through Congress and, for a change, not due to partisanship. Negatively portraying trade agreements as a culprit for lost jobs, especially in areas struggling economically, was once a staple of Republican Congressional campaigns. Now even the Democrats, primarily the most liberal, are vocally critical of sweeping trade deals.
"The left wing of the Democratic Party hates these deals with a passion and sees them as detrimental to the position of the worker in the US, even if the facts strongly suggest otherwise," said NACM Economist Chris Kuehl, PhD last month. "Obama, in the past, boasted better poll numbers and there were more within the ranks who wanted his blessing. With the attention shifting to who the Democratic standard bearer will be in the 2016 race, Obama may have lost some of his ability to take his own party in a direction it doesnâ€™t want to go."
- Brian Shappell, CBA, CICP, NACM staff writer
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The process of enacting a new lien statute in Mississippi took another important step forward this week as Senate Bill 2622 sailed through the State Senate, passing on a 48-2 floor vote. Three minor amendments were negotiated in advance and included in the legislation as approved, but none of them are expected to affect subcontractors and materials suppliers in a meaningful way.
Area subcontractors and suppliers have scrambled to draft new construction law payment protections since last year's ruling by the US Fifth Circuit Court of Appeals in Mississippi that affirmed a lower court's decision which found the state's Stop Notice statute unconstitutional. Stop notices were previously one of the only ways by which subcontractors and materials suppliers could pressure a general contractor into payment, but the ruling essentially removed payment protections for any party who didn't have a direct contract with the owner, according to Chris Ring of NACM's Secured Transaction Services (STS).
SB 2622 was introduced alongside a similar bill in the state's House of Representatives, but that legislation was allowed to die as the newly-approved Senate bill moves to the state House Judiciary Committee for further consideration. STS will continue to monitor the bill's progress.
Meanwhile, companies in the construction industry operating in Arizona hoping for legislation that would consolidate the state's filing requirements into one online registry system will have to wait until at least next year for that to happen. A bill to establish such a registry was sponsored in the state legislature by Representative Karen Fann, but after a meeting of stakeholders last week, the bill was withdrawn due to a number of significant issues with the legislation. Fann encouraged interested parties to continue negotiating over the summer so that a more agreeable bill can move forward in the state's next legislative session.
Follow these and other news developments in the construction world on the STS website.
- Jacob Barron, CICP, NACM staff writer
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US exports set an annual record for the fourth consecutive year in 2013, as the total value of goods and services exported reached $2.3 trillion. That's 44% higher than in 2009, just before President Barack Obama announced the inauguration of his National Export Initiative (NEI), which sought to double American exports between 2010 and the end of this year.
"As the numbers prove, American entrepreneurs will continue to outperform their competitors in the global marketplace, as long as they are given a level playing field," said US Export-Import Bank Chairman and President Fred Hochberg. "Under the strategic direction established by President Obama's NEI, we continue to export more goods at a record pace," he added, noting that the $2.3 trillion worth of US goods and services exported in 2013 supported nearly 10 million American jobs.
US merchandise exports to countries with whom the US has trade agreements also set records. Sales to North American stalwarts Canada and Mexico increased by 2.7% and 4.7% respectively in 2013, and US exporters experienced noteworthy increases in sales to Colombia (+13.8%), Panama (+9.6%), Peru (+7.6%) and Jordan (+18.2%) last year as well.
"These export numbers show that for more and more American companies, selling internationally is critical to growing their businesses and strengthening our economy," said Commerce Secretary Penny Pritzker. "With more than 95% of the worldâ€™s potential consumers residing outside our borders, exports will continue to be an important driver of the local and national economy. This important export data confirms that President Obamaâ€™s call for increasing our exports and ensuring that trade and investment become part of our economyâ€™s DNA is the right course for America."
On a regional basis, Latin America's demand for US goods continued to drive exports to greater heights in 2013, and the region hosted six of the 10 countries with the largest annualized increases in US goods purchases when compared to 2009. Among export markets with at least $6 billion in annual imports of US goods, the biggest gainers were Panama (25.9%), Russia (20.3%), Peru (19.6%), Hong Kong (19.2%), United Arab Emirates (19.1%), Colombia (18.5%), Chile (17.1%), Ecuador (16.8%), Argentina (16.3%) and Indonesia (15.5%).
Sixteen US states also set new records for export sales in 2013: Texas ($279.7 billion), California ($168.1 billion), Washington ($81.9 billion), Louisiana ($63.1 billion), Michigan ($58.5 billion), Ohio ($50.5 billion), Georgia ($37.6 billion), Tennessee ($32.4 billion), North Carolina ($29.3 billion), South Carolina ($26.1 billion), Kentucky ($25.3 billion), Connecticut ($16.5 billion), Mississippi ($12.4 billion), Maryland ($11.8 billion), Colorado ($8.7 billion) and Oklahoma ($6.9 billion). Additionally, Alaska, Arizona, Delaware, Kansas, Massachusetts, New Hampshire, New York, Oregon, Pennsylvania and South Dakota all experienced growth in total merchandise exports in 2013 as well.
- Jacob Barron, CICP, NACM staff writer
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The latest statistics from the Federal Reserve show that industrial production suffered a pretty significant setback to start the year, but the hope is that most of the sluggish performance is tied to severe winter weather in many parts of the country.
The Fed noted that industrial production decreased 0.3% in January, freefalling from the 0.3% increase the previous month that inspired great optimism. Still, January's level, at 101% of the 2007 average, was nearly 3% higher than the production level of January 2013 even if it was below the long-term average.
The drop in manufacturing was particularly noticeable, down 0.8% from December, after five consecutive months of gains. In fact, it was among the largest declines in manufacturing output since the end of the Great Recession. Industries with the worst pace drop offs for the month were steel, semiconductors, motor vehicles and organic chemicals production. Agricultural and textile production, noted for slowing output within the non-durable manufacturing category, was also down 0.8% in January.
Fed analysts and officials hinted that the winter storms that hit the Midwest and Eastern seaboard particularly hard made it nearly impossible for output to match that of previous months.
- Brian Shappell, CBA, CICP, NACM staff writer
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