February 23, 2010

News Briefs

  1. Credit Congress Early-bird Deadline Approaching Fast!
  2. Stimulus First-year Grade Reports: Mixed
  3. Encourage Inter-department Training, Understanding
  4. Credit Rating Hits, Bankruptcy Talk Spreading in Nation's Cities
  5. Negotiations Continue on Financial Reform, Bills Expected This Week
  6. No Need for Panic…Yet…Over Chinese Credit Restrictions
  7. Pressure Mounts on Congress, Obama to Approve FTAs
  8. Fed Increases Discount Window Rate

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Upcoming Events



Credit Congress Early-bird Deadline Approaching Fast!

The early-bird registration deadline for this year's NACM Credit Congress and Exposition is this Friday, February 26th. Don't miss out on the premier educational event for credit and financial professionals, scheduled for May 16-19, 2010 in sunny Las Vegas!

As always, NACM's 2010 Credit Congress will give attendees the chance to get the most from engaging keynote speakers, certified experts and highly-experienced colleagues leading this year's educational program. But in addition to cutting edge educational sessions on a broad array of topics, this year's Credit Congress also offers credit professionals the opportunity to bask in the luxury of one of Las Vegas' best-known and highly-regarded resort hotels, the Rio. Host to this year's Congress, the Rio provides its guests with a one-of-a-kind Vegas experience, from its sumptuous suites to its world-class facilities and attractions.

In between getting the most out of this year's always-valuable educational sessions, led by industry-leading practitioners, Credit Congress attendees will be able to take advantage of the Rio's many amenities such as the Rio Spa & Salon, offering a selection of soothing spa treatments, and the Rio Secco Golf Club, named the top-ranked public access course in the state of Nevada by the Las Vegas PGA.

Attending credit professionals looking to unwind after a day of sessions can also find much to love about the Rio Hotel's nightlife offerings, which include the I-Bar and the VooDoo Lounge, located 50 floors up at the top of the hotel and host to Vegas' most stunning 360-degree view of the city and its surroundings. Additionally, attendees looking to extend a little credit of their own will certainly have the opportunity to do so, as the Rio also hosts more than 60,000 square feet of shopping.

Don't miss out on this uniquely Vegas experience! Register by February 26th to get the most bang for your buck! For more information on Credit Congress' educational and networking opportunities, or to register, visit http://creditcongress.nacm.org.

Jacob Barron, NACM staff writer

Get Ready for Your March 8th Designation Exam With Help from NACM

Sitting for a designation exam on March 8th? Need last-minute help getting ready? NACM has several quick and easy ways to prepare—the Credit Learning Center and practice exams.

The Credit Learning Center contains four review sessions for the CBF designation and three for the CCE. Start your review immediately. Purchase and download the session(s) of your choice here.

Still have questions? Contact the NACM Education Department at 410-740-5560 or browse the online certification area for an extensive menu of certification information. Included in this area are free CBA and CBF practice exams.

Click here to take the CBA or CBF practice exams today.

Stimulus First-year Grade Reports: Mixed

The first-year report card of the $787 billion stimulus bill is in and the results are either overwhelmingly positive or entirely negative, depending on who's grading.

Leading the negative reviews was House Minority Leader John Boehner (R-OH), whose reaction was predictably grim, as were the reactions of his fellow Republican colleagues. "Today's anniversary of the Democrats' trillion-dollar 'stimulus' marks one year of broken promises, bloated government and wasteful spending," said Boehner, who went on to crystallize the refrain of complaints heard from nearly all republican members of Congress at the bill's one-year anniversary. "The majority promised that under their 'stimulus' unemployment would not exceed 8% and job creation would begin 'almost immediately.' But since President Obama signed it into law, more than three million Americans have lost their jobs, unemployment is near 10% and the deficit is set to hit a record $1.6 trillion."

Others, like Sen. John Cornyn (R-TX), also said the American Recovery and Reinvestment Act failed to create jobs as promised, while Sen. Orrin Hatch (R-UT) called the act a "profound disappointment." Clearly, the review from the right side of the aisle was a stark and immutable "F."

On the other side, however, it seemed as though there simply weren't enough good things to be said about the stimulus. "One year after President Obama signed the Recovery Act into law, this unprecedented measure continues to generate jobs and lay a foundation for economic growth by rebuilding our infrastructure, supporting our schools and health clinics, cutting taxes for 95% of working Americans and creating the clean energy jobs of tomorrow," said Speaker of the House Nancy Pelosi (D-CA). Sen. Ben Nelson (D-NE), among the majority party's most conservative members, agreed with Pelosi and other Democrats' assessments. "The American Recovery and Reinvestment Act was a necessary and targeted response to a national economy rapidly falling into a major depression," said Nelson. "Now a year later, all major economic indicators show our economy is turning around."

Beyond the partisan halls of Congress, however, the results of the stimulus were met with a much-less galvanizing response. A recent report from the Associated General Contractors of America (AGC) indicated that the one-year-old bill had a greater effect on construction jobs than first thought, but cautioned that the industry isn't out of the woods yet.

AGC's analysis of newly released federal data showed that stimulus-funded infrastructure projects were saving and creating more direct construction jobs than earlier estimates indicated, and that more contractors were likely to perform stimulus-funded work in 2010 as work begins on many non-transportation projects originally accounted for in the legislation.

"The stimulus is one of the very few bright spots in the construction industry experienced last year and is one of the few hopes keeping it going in 2010," said AGC Chief Economist Ken Simonson. "The stimulus is saving construction jobs, driving demand for new equipment and delivering better and more efficient infrastructure for our economy."

In the last 12 months, federal reports indicate that $20.6 billion worth of stimulus highway projects have begun, saving or creating nearly 280,000 direct construction jobs, amounting to 15,000 jobs per billion dollars invested. Pre-stimulus estimates suggested that every billion dollars invested would create only 9,700 jobs.

Despite its positive influence on the sector, Simonson noted that overall declines in construction activity would still overshadow any positive effects the stimulus might have. "The stimulus will keep a bad situation from deteriorating further," he said. "That may or may not make for great headlines, but it is welcome news for construction workers anxious to continue receiving paychecks."

Other positive effects of the stimulus listed by Simonson included the fact that heavy and civil engineering construction employment remained stable in January 2010, even as total construction employment declined by 75,000. Additionally, highway and road construction, which received the bulk of stimulus funds in 2009, was one of the only areas to see an increase in spending in 2009 even as total construction spending fell by $100 billion over the same period.

Jacob Barron, NACM staff writer

Export LCs 101 and the Fundamentals

Are you ready for the next phase of training in the world of international trade and letters of credit (LC)? Everyone has gone to LC Seminars presented by various banks or trade groups, yet no one touches on the "nitty gritty" and gives these presentations from the manufacturing side with a hands-on perspective. To get the most out of these often confusing security instruments, join Danielle Austin, an energetic and engaging expert on LCs, for her latest NACM teleconference "Export LCs 101 and the Fundamentals," on March 1st at 3:00pm EST. Austin will show attendees how they can make these meticulous, frustrating, rigid documents work for them and their companies, as well as how to use LCs as a competitive, profit-generating sales tool as well.

To learn more, or to register, click here.

Encourage Inter-department Training, Understanding

If your credit department staffers do not know what type of stresses employees in other departments go through, or what those others think about them on a professional and/or personal level, it can lead to bitterness and resentment that does nothing but hold back the potential for profitability.

Susan Archibeque, CCE, recently led the NACM teleconference "How to Get Buy-in From the Top-Down," which touched on the topic of improving inter-department teamwork. Part of the problem is that credit department employees often are unaware of the negative opinion others at a company may have of them, said Archibeque, director of credit at Utah-based Nicholas & Co. Credit professionals are often characterized as "preachy" or "downers," and not understanding of the needs of a sales staff. "It's very critical to understand what their goals are so they can see you as trying to help them through," said Archibeque. "The only way you can change a [negative] perception is to create as new one."

While the negative view of credit professionals can often be an unfair stereotype, many bring it upon themselves. Archibeque said, "A lot of credit people talk to their sales team."

One way to break down barriers between staff groups that can, at times, be at odds with one another is planning social events. Something as simple as an office bowling trip can go a long way to getting those in the credit and sales departments to let down their guard a little and get to know one-another, Archibeque suggested. Another, more in-house approach is setting up cross-training, "walk-a-mile" programs so credit employees can understand what sales workers go through on a day-to-day basis...and vice-versa for those handling important credit decisions.

"It's an eye-opening experience on both ends," said Archibeque. "If they don't understand what the other is dealing with, they're very quick to judge."

Having management on board with such efforts is critical because, without top-down support from company officials, any effort to build inter-department teamwork will fall flat on its face. Archibeque notes that getting the green light from the higher-ups often is all in how you sell it to management—e.g., convincing them the concept will ensure the type of better teamwork, accountability and retention that all lead to better efficiency and profitability.

"If I said 'What if we increase working capital by $13 million a day?'...Do you think I got their attention?" Archibeque argued. "It's a no-brainer."

For a replay of this teleconference, contact Tracey Flaesch at 410-740-5560 or at traceyf@nacm.org. To learn more about NACM's teleconference series, click here.

Brian Shappell, NACM staff writer

New MLBS Half-day Workshop Coming in March!

Join NACM's Mechanic's Lien & Bond Services (MLBS) Director Greg Powelson for his next half-day lien and bond workshop on March 19th at the Norwalk Marriott in Norwalk, CA. In "Liens & Bonds: Building the Optimal Credit Department," Powelson will take attendees through the many idiosyncrasies that accompany construction credit and the many ways in which liens and bonds can be used to secure payment on what are often risky projects. From collecting job information all the way through foreclosure, attendees will get a fast-paced look into how they can create the optimal construction credit department.

To learn more about the program, register or read testimonials about Powelson's previous presentations, click here.

Credit Rating Hits, Bankruptcy Talk Spreading in Nation's Cities

As the economy continues its struggles to emerge from the deepest recession in decades, several of the nation's key cities are feeling the economic pinch. And whispers are growing louder that some are on the brink of full-scale bankruptcy.

Harrisburg, PA took its second significant hit to its credit rating from Moody's Investor Services this month and now carries a dubious "negative outlook" in part because a plan to renovate a trash incineration plant for the city went wrong. Pennsylvania's capital city faces possible bankruptcy as a result of the $288 million in debt it guaranteed for the retrofit project, and officials have unveiled few options short of doubling property tax rates and selling of city-held assets. The city of Miami also is flirting with the idea of bankruptcy because of what City Management and Budget Director Michael Boudreax characterized as a full-on financial crisis. The city has been haunted financially by the real estate crash, which effected Florida as much as any state in the nation by drastically reducing money collected by property taxes and development fees, as well as rising pension obligations and an inability for city staff to determine what the city's level of deficit actually is. The deficit appears to be in the range of $20 million and $40 million.

Meanwhile, Los Angeles faces similar budget problems also in part because of real estate woes and huge payroll obligations for city workers, with a 2010 shortfall exceeding $200 million and an expected 2011 deficit of at least $400 million. Tack onto that the fact that Los Angeles' credit rating has been in freefall mode since last year, meaning it will be more expensive for the city to borrow money from private sources for the foreseeable future. Across the desert, officials in Las Vegas are fretting that its credit rating will be badly damaged by the ill-fated Monorail project. The city essentially risked its future credit rating on the project—an above-ground rail line linking the city's massive convention center with various hotel-casinos on the Las Vegas Strip—that has fallen into bankruptcy.

Ryan Sweet, senior economist with Moody's Economy.com, said the well-publicized city problems have potential to add to the ongoing crisis of confidence throughout the nation that's stymieing a robust economic recovery.

"The initial impact is a psychological one," said Sweet. "Businesses will be very worried about future taxes in these areas. It could deter some investments if they think taxes are to rise unexpectedly." He adds such uncertainty also could give businesses cold feet regarding adding to payrolls with new or returning employees.

Sweet says cities like Harrisburg are in an even more unenviable position because of budget woes at the state level. Because of its own deficit, Pennsylvania state officials have all but told its capital city that it won't be able to ride to the rescue financially.

"It puts the city economically at risk of a much weaker recovery," Sweet says. "Harrisburg is very reliant on state government as an employer. They have a few other divers, but they're all pretty much dwarfed by the government's role in the economy."

Likewise, Los Angeles, which already kept businesses and contractors waiting for long periods for payments through I.O.U.'s last year because of financial woes, can't expect much help from the state of California. Eduardo Martinez, another senior economist with Moody's Economy.com, intimates it's a problem that could spread to other California cities in the near future.

"Every municipality is suffering already, and many are facing large deficits for the future," said Martinez. "The cities just can't count on a lot of things and have to make tough decisions. I don't think anyone can expect the state to step in with a line item of assistance."

"Those days, if they had even existed, are long gone."

Brian Shappell, NACM staff writer

Industry Credit Groups

Credit groups are an effective management tool. They permit 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 as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, 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 find the group for your industry.

Negotiations Continue on Financial Reform, Bills Expected This Week

Senate Banking Committee Chairman Chris Dodd (D-CT) recently announced a new alliance in his quest to pass comprehensive financial reform ahead of his retirement from the Senate this year. In order to give the still unfinished bill bipartisan appeal, Dodd announced that he would negotiate the measure with fellow committee member Sen. Bob Corker (R-TN).

"For over a year, the Senate Banking Committee has been grappling with how best to address the many problems that led to the financial crisis," said Dodd. "In that time Sen. Corker has proved to be a serious thinker and a valuable asset to this committee. For that reason, I asked him to negotiate the financial reform bill with me. We met in my office and, given the importance of these issues, he agreed."

Among the most contentious portions of financial regulatory reform is the formation of a new, independent agency charged with protecting consumers from financial pitfalls, which the democrats support and republicans oppose. Corker suggested starting on common ground and working later on the bill's more problematic sections. "I believe consumer protection should be part of any financial regulatory reform negotiations, but I believe the best way to proceed with negotiations is to set the issue aside for now and work first through those areas where there is general consensus," said Corker. "Like most republicans, I believe a standalone agency for consumer protection or separating those protections from safety and soundness are nonstarters."

A reform bill passed in the House of Representatives at the end of last year, but no Senate action has yet taken place. Dodd and Senate Banking Committee Ranking Member Richard Shelby (R-AL) are expected to introduce drafts of competing bills later this week, with Dodd's bill presumably including Corker's bipartisan investments.

Jacob Barron, NACM staff writer

Joint Check Agreements

How one crafts a joint check agreement can be crucial in how such a pact holds up in bankruptcy court. One certainty is that there is no such thing as a "standard" joint check agreement.

As such, James Fullerton Esq. will highlight the wide variety of wordings in such agreements as well as the protection they offer a supplier on a construction project during the NACM teleconference "Joint Check Agreements," on March 15th at 3:00pm EST. The Virginia-based attorney's firm, Fullerton & Knowles, P.C., is widely known for its Construction Law Survival Manual, which outlines everything from contract litigation to mechanic's liens to bankruptcy.

To learn more or register, click here.

No Need for Panic…Yet…Over Chinese Credit Restrictions

A second notice that Chinese-based business and consumer lending will slow significantly in 2010 is not reason for alarm, said several economists; that is, however, unless it's a sign of a upcoming major slowdown being implemented by China's central bank.

For the second time this year, the nation's central bank has ordered financial institutions to maintain larger percentages of its deposits at the central bank and has placed limits on business and consumer lending. Chinese officials appear more concerned of late that high levels of economic growth in the nation could be jeopardized by inflationary pressures and over-borrowing on the part of businesses and consumers.

Still, Moody's Economy.com Director Virendra Singh said there's no concrete indication that China is ready to rein in real economic activity at this point after years of hot growth.

"On the contrary, all indications are that the government wants to continue promoting high growth, which will have a salutatory impact on the U.S. economy," said Singh. The economist added that efforts to curtail leveraged spending, if and when they should begin, likely would be more effective than similar efforts in nations such as the United States because China's financial market is so heavily controlled by its government. In essence, China has less of a reason to rush into an era of drastically tighter credit conditions.

Xiaobing Shuai, senior economist at Chmura Economics & Analytics, agrees the moves are unlikely an indication of a long-term strategy on the part of the Chinese central bank, and said businesses should take a wait-and-see approach on emerging Chinese economic policy. Moreover, the move is not that out of the ordinary for China's central bank.

"If you look at previous years, they've sometimes cut back empirically on purchases from the U.S. Treasury," said Shuai. "I tend to think it won't have a big impact right now. But, if they keep doing that for a few months, it certainly will." However, with the global economy struggling and so interlinked with Chinese activity at present, it is unlikely its central bank would purposely freeze international credit markets. Said Shuai, "There would be no worse possible timing to do so."

Brian Shappell, NACM staff writer

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Pressure Mounts on Congress, Obama to Approve FTAs

Pressure from both the Senate and the private sector has mounted on democrats and President Barack Obama to approve pending free trade agreements (FTAs) with Panama, South Korea and Colombia.

"Free trade agreements are job creators," said Sen.George LeMieux (R-FL), the latest republican to call for approval of the nation's three unresolved FTAs. "What we need in Florida are more jobs. Our state stands to benefit directly from increased trade and Congress should approve these agreements immediately."

In his State of the Union speech, President Obama called for a doubling of exports in the next five years, citing international business as a source of job creation for the nation's stagnant employment numbers. Republicans, as well as others, have portrayed FTAs as a quick means to increasing exports and getting more businesses involved abroad. LeMieux noted that FTA approval would have specific importance for his home state. "With 14 deepwater ports and more than 33,000 Florida businesses that export their goods, trade helps our local economies and provides opportunities for Florida's families," he said. "Throughout Latin America and the hemisphere, we know free trade strengthens democracies. It provides prosperity and a brighter future."

Additionally, in a recent joint address, the U.S. Commerce Department announced that it would partner with United Parcel Service Inc. (UPS) to achieve Obama's exporting goals in the stated period of time. In his remarks introducing U.S. Commerce Secretary Gary Locke at a recent event in Georgia, UPS CEO Scott Davis reiterated the call to approve more FTAs. "UPS has seen that our export volumes have a double-digit volume growth to countries with which the U.S. has negotiated free trade agreements," he said.

Locke noted that the president supports the approval of pending FTAs, but that some barriers still need to be overcome before further action can take place. "There are a few issues that have to be resolved with each of those," said Locke. "Our U.S. trade ambassador, Ron Kirk, has been working with his counterparts in those other countries to address those, but we know how much these trade agreements can mean for U.S. companies."

Jacob Barron, NACM staff writer

Fed Increases Discount Window Rate

In perhaps the most blatant sign to date that economic conditions are showing significant improvement, the Federal Reserve increased its primary credit rate for short-term bank lending, also known as the discount rate, for the first time in nearly two years.

The Fed announced that the "discount window" lending rate for banks in need of short-term loans from the government would be increased a quarter-point, from 0.5% to 0.75%, effective February 19, 2010. It's a move Fed Chairman Ben Bernanke hinted at before Congress, as reported in the Feb. 16 edition of NACM's eNews, and the first time the rate has changed since March 16, 2008. In essence, the Fed wants financial institutions to seek short-term credit from private market sources, as had typically been the case prior to 2008, when there was a negative stigma attached to borrowing from the Fed's discount window. At that time, such a move was characterized as a bank's option of last resort.

Still, the increase came as a shock to markets, as it widely was believed the discount lending rate would remain untouched until spring. The move is another in a line of recent mixed messages from a Federal Reserve that had been talking up its effort to become more clear and transparent. Among other similar seemingly contradictory gestures was Bernanke's strong hint during testimony earlier this month that an increase in the federal funds rate would be necessary in the near future to stave off inflation, while, moments later, noting the economy "continues to require the support of accommodative monetary policies."

Brian Shappell, NACM staff writer

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