August 19, 2010
Banks have finally begun to loosen their lending standards for small businesses according to a recent survey conducted by the Federal Reserve.
The July 2010 edition of the Fed's Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that domestic banks had eased up on lending standards to customers of all sizes, a move that "continues a modest unwinding of the widespread tightening that occurred over the last five years," said the report. "Moreover, this is the first survey that has shown an easing of standards on Commercial & Industrial (C&I) loans to small firms since late 2006," it added.
A number of banks reported lowering prices for C&I loans as well, although the reason has less to do with increased creditworthiness than it does with increased competition. "Banks pointed to increased competition in the market for C&I loans as an important factor behind the recent easing of terms and standards," said the report. "Demand for C&I loans from large and middle-market firms and from small firms was reportedly little changed, on net, over the survey period after declining over the three months prior to the April survey."
Still, there were respondents who noted that a more positive economic picture had encouraged their banks to increase lending and loosen standards. "About one-half of the respondents that eased [lending standards] pointed to a more favorable or less uncertain economic outlook," said the report, noting, however, that among the small percentage of respondents who had tightened their lending standards, their reasoning was based on a far grimmer perspective. "Respondents that had tightened lending policies—primarily smaller banks in the sample—generally attributed the move to a less favorable or more uncertain economic outlook, rather than bank-specific factors such as concerns about their capital or liquidity positions," they said.
Despite the first signs of loosened credit for smaller companies seeking loans, the largest percentage of respondents noted their terms had changed little since the last survey, indicating that many lenders are still clinging to previously-held policies. When asked about their bank's lending terms to smaller companies, 14.5% answered that they had "eased somewhat" while 80% answered that they had "remained basically unchanged."
Jacob Barron, NACM staff writer
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Despite scattered talk that the pace of its economic surge is pulling back slightly, Brazil continues to be one of the few economies performing in exemplary fashion as many worldwide are stuck in a post-recession mire similar to that of the United States. And the South American powerhouse's prospects are only likely to continue surging, providing a growing target for U.S. exporters.
Brazilian central bank President Henrique Meirelles vowed this week that the nation's economy would continue to grow in the present quarter and that inflationary pressures are being held largely in check. The sentiment is similar to those of a long list of pro-Brazil economists and the International Monetary Fund, which predicted its total growth for the 2010 calendar year to track at about 9%.
Brazil was ranked tenth among nations receiving exports from U.S. companies, taking in $41 billion in products in 2008, according to the U.S. International Trade Commission and a July report from left-leaning Washington think tank the Brookings Institution. And that number is expected to rise in nearly all credible forecasts. Brookings noted Brazil is part of the trio of BIC nations (along with India and China) that are expected to drive economic growth, while much of the industrialized world continues to sputter through stalled economic recoveries. It predicts the BICs will account for more than 25% of the world economy by 2015 and more than 26% of middle class consumption by 2020.
"This population will increasingly have more purchasing power and demand more specialized goods and services," said Brookings. "The United States has not fully taken advantage of this emerging wave."
Hans Belcsák, president of S.J. Rundt & Associates Inc., said the Brazilian market should grow significantly for U.S. exporters for the foreseeable future. With its emerging oil industry, newfound consumer appetite, as well as its high-profile position as host nation of both the 2014 FIFA World Cup and the 2016 Olympic Games, Brazil's future is bright. That doesn't even take into account the coming improvements in shipping to and from Brazil, especially from ports in the western United States, upon completion of the Panama Canal expansion project in 2014.
"There's a lot of development in northern Brazil, where the oil is, so it's going to make a lot of sense to push stuff through the canal [instead of around the bottom of South America]," said NACM Economic Advisor Chris Kuehl, Ph.D., Armada Corporate Intelligence. "It should definitely open up exporting. If you're a western U.S. company and you're looking for a fast-growing export market, you're looking right at Brazil."
Brian Shappell, NACM staff writer
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Though public sniping between the developer and the general contractor has tied up an $8.5 billion development on the Las Vegas Strip, it appears some of the subcontractors hurting for money have started receiving payment, with tentative plans for everyone to get paid by year's end.
CityCenter developer MGM Resorts International (formerly MGM Mirage) has paid or has all but finalized payment terms with about one-third of the 233 first-tier subcontractors who worked on the mixed-use project. The subcontractors had been hoping for payments on outstanding bills for work completed amid a public spat between MGM and general contractor Perini Building, which are locked in a record $492 million mechanic's lien filed this spring, as well as accompanying intervention attempts by state and local lawmakers and increasingly personal public relations efforts by both parties.
MGM officials continue to contend that the company will pay all first-tier subcontractors within the next five months. The casino/resort developer began the seemingly unprecedented move to pay subcontractors directly despite the massive mechanic's lien Perini filed against it. One source at a CityCenter subcontractor told NACM's eNews that his company has already settled on a dollar figure, though not the full amount, and that companies remain cautiously optimistic that the unique settlement approach will continue. "I do think they [MGM] are trying to do the right thing by the subs, but only time will tell," he quipped.
However, not all settlements are coming directly from MGM. One source noted that its subcontracting outfit settled directly with the general contractor despite the existing lien on the outstanding balance. (Note: subcontractors had been paid for completed work during various times since the project began.) Again, the source said the settlement was for less than what was owed, by at least 15% to 20%.
"We're agreeing to this amount so as to get the majority of our money and hopefully keep Perini as a future customer. They are the largest construction company in the U.S.," said the source. "We'll end up making money on our contract with Perini, just not as much as we thought we would."
Perini filed the lien alleging that MGM abruptly stopped paying for work already completed earlier this year, made thousands of change orders on the project's design well after an agreed-upon deadline and was trying to buy time because of its ongoing financial struggles. Perini said nearly $400 million of its mechanic's lien filing represented what was owed to subcontractors. Prior to beginning the direct payments, MGM countered with allegations that Perini failed to present MGM with a final bill before filing the record mechanic's lien and botched the construction of the Harmon Hotel portion of the project so badly that it needed to be reduced by more than 20 floors from its original design.
MGM noted earlier this month that losses and write-downs associated with the CityCenter project were the primary cause of the company's quarterly earnings net loss.
Brian Shappell, NACM staff writer
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Over the last few years, America has tried to export her way out of economic stagnation. Exports have long been one of the bright spots in the monthly onslaught of economic figures, and officials as high-ranking as the President have sought to exploit that fact to spur business, increase confidence and hopefully create jobs.
While that effort continues unabated, a new bipartisan package of trade provisions takes a slightly different approach by focusing on imports as a means to making life easier for U.S. manufacturers. The U.S. Manufacturing Enhancement Act, signed into law last week, is an aggregation of several other bills sponsored by individual members of Congress that suspend or reduce tariff duties for imported products that are not domestically available. The bill aims to make it cheaper for U.S. manufacturers and small businesses to get the materials they need to make and sell their products.
"Manufacturers in Montana and across the nation worked closely with us to craft this smart, targeted tariff relief that supports American workers making American products," said Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, which has sole jurisdiction over U.S. trade policy. "This new law supports good-paying American jobs by making it cheaper and easier for small businesses and manufacturers to make their products here in the U.S., and compete around the world."
Each individual bill was thoroughly vetted to ensure it met certain standards before it could become part of the now-enacted package. For example, each bill had to be non-controversial, meaning no member of Congress or domestic producer objected to it. Additionally, no individual bill could result in a total estimated annual revenue loss of more than $500,000 to the U.S. Treasury.
After being checked by the International Trade Commission, the U.S. Customs and Border Protection Agency and the Department of Commerce to ensure that all the individual bills met the established criteria, they were compiled into the larger package, which passed the Senate by unanimous consent in late July.
The bill reduces import tariffs on a wide array of products. A full copy can be found here.
Jacob Barron, NACM staff writer
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A group of prominent Senate Democrats recently called on Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro to require fuller and more accurate corporate accounting disclosure.
Specifically, the group urged Schapiro to use her agency's existing authority to prevent instances where corporations conceal their debts and financial weaknesses. In its letter, the group of six Senators cited Lehman Brothers' use of an off-balance sheet "Repo 105" transaction to hide its debts and project a falsely positive portrait of its financial state.
"The Lehman Brothers' use of the 'Repo 105' transaction is particularly troubling," said the letter. "According to the Lehman Brothers Examiner's Report conducted by Anton Valukas, Lehman took advantage of accounting rules to temporarily book a loan as a sale, and by carefully timing this transaction just before the release of its quarterly financial report, Lehman was able to deceive the public and regulators into thinking it was much better capitalized than it actually was." Such activity is apparently still rampant, as the letter referred to a Wall Street Journal article that showed a group of 18 banks had understated their debt levels by lowering them by an average of 42% at the end of each of the past five quarters.
"Rather than relying on carefully-staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation," said the letter, signed by Senators Robert Menendez (D-NJ), Edward Kaufman (D-DE), Carl Levin (D-MI), Dianne Feinstein (D-CA), Barbara Boxer (D-CA) and Sherrod Brown (D-OH). "The SEC was founded on the premise that when investors and creditors have full and accurate information about companies' finances, they can allocate capital effectively. But when companies use accounting gimmicks to mislead investors and creditors, capital markets malfunction."
The Sarbanes-Oxley Act of 2002 gave the SEC the authority to require the reporting of off-balance sheet activities, but the agency has only issued rules and guidelines on the subject, rather than definitively regulating it. In their letter, the Senators called on the Commission to require companies to write detailed descriptions of all their off- balance sheet activities in their annual 10K reports. Current regulations only require them to detail off-balance sheet activities that are "reasonably likely" to affect the firm's financial condition.
"Companies should also explicitly justify why they have not brought those liabilities onto the balance sheet," the letter added. "Complete disclosure of all off-balance sheet activities is particularly crucial for the largest and most interconnected companies, including both banks and non-banks."
Other requests made in the letter include for the SEC to encourage the Financial Accounting Standards Board (FASB) to improve financial reporting rules for all types of off-balance sheet activities and to monitor the FASB's efforts to prohibit off-balance sheet financing. "As we attempt to recover from the latest meltdown, we hope that, in addition to aggressively investigating and prosecuting past misconduct, you will put in place these new rules that will make it harder for companies to mislead investors and creditors in the future," said the Senators.
Jacob Barron, NACM staff writer
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A new educational program designed to ease the transition for commercial real estate contractors and subcontractors moving toward more sustainable construction practices launched yesterday (August 18), according to the trade association behind it.
The Associated General Contractors of America (AGC) has unveiled its green construction program, Building to LEED (the Leadership in Energy and Environment Design certification program) for New Construction, Second Edition. The program seeks to help contractors, designers and developers achieve greater success in sustainably-driven construction endeavors, especially ones where aforementioned players plan for "green" third-party certification.
"Green building is rapidly changing from a niche market to the industry norm," said AGC CEO Stephen Sandherr. "Within a short time, the ability to master the complexities of green construction and certification will be essential to succeeding as a building contractor." Sandherr noted that the number of in-progress green construction projects will surge by at least 25% in the next three years.
Meanwhile, the U.S. Green Building Council (USGBC), which administers the LEED program, has started an active recruitment drive asking those who have built LEED-certified commercial structures in recent years and those embarking on such ventures in the near future to help it cull information. USGBC is hoping the feedback, both from commercial and residential builders/developers, will help it develop future, better versions of the LEED program.
"By providing a large and accurate data set critical to supporting the ongoing improvement of LEED and continuous optimization of LEED-certified projects, BPP (the Building Performance Partnership program) will ensure LEED projects deliver on their extraordinary environmental and economic potential," said LEED Senior Vice President Scot Horst. He added that a "disconnect" often exists between the design and best intentions of a so-called green project and the actual performance of such a building. "BPP will help projects meet operational sustainability goals sought originally during the design of the construction process. The data will shed light on external issues such as occupant behavior or unanticipated building-usage patterns."
Brian Shappell, NACM staff writer
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