Category Archives: SBA

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Small Businesses Lagging in Recovery

By Amaresh Gautam

The economy for small businesses has not really recovered from the subprime crisis that started unfolding in 2007, with results being far slower when compared to larger businesses. The signs of recovery for larger businesses became apparent when they started registering revenue growths and started increasing worker salaries, but similar statistics are actually depressed for smaller firms.

The blame partly rests with the new banking regulations imposed by the regulators in the Moving targetaftermath of the crisis, which include among other things, higher capital requirements that have increased the cost to lend, and thereby reduced the availability of credit for less profitable small businesses. It should be noted that smaller businesses rely more heavily on bank financing than larger businesses. These new regulations also increased some other fixed costs of doing business, which have hurt smaller firms more since they are unable to spread their costs over large business volumes.

Other trends also show that small firms are not doing very well after crisis. For example, traditionally job growth was always better at firms with less than 500 employees, as compared to larger firms, however this trend has reversed in recent years. Moreover, in the years since the financial crisis, the gap between wage growth at larger firms and smaller firms has also widened significantly. The number of small businesses has declined over the last five years, which is unusual because it’s the only such decline since the U.S. Census Bureau data first became available in the late 1970s.

Large business loans have increased more than 25% from the levels seen in 2008, while small business loans at banks are still less than the comparative figures seen in 2008. The cost of smallest business loans has also risen 10% from the average pre-crisis level, which weighs on the competitiveness of banks.

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National Foreclosure Inventory Falls Again in July

By Ravinder Kapur

Foreclosure inventory across the country fell 27.9% year over year through July, 2015, marking the 45th consecutive month of decline, with the number of homes in this category falling to 469,000 from 650,000 a year earlier. Additionally, the number of mortgages in serious delinquency, defined as 90 days or more past due, fell 23% over a one year period to reach a level of 1.3 million homes in July, 2015.

CoreLogic has also reported that the number of completed foreclosures in the month of ForeclosuresJuly fell to 38,000 from a level of 50,000 in the same month of 2014, a decrease of 24.4%. The peak number of completed foreclosures had taken place in September, 2010, when a record 117,225 foreclosures had been completed. The total number of completed foreclosures since the financial crisis began in September, 2008 is approximately 5.8 million.

Speaking about the improvement in delinquencies, CoreLogic’s chief economist Frank Nothaft said, “Job market gains and home-price appreciation help to push serious delinquency and foreclosure rates lower. The CoreLogic National HPI™ showed home prices in July rose 6.9% from a year earlier, building equity for homeowners. Further, 2.4 million jobs were created, pushing the unemployment rate down from 6.2% in July, 2014 to 5.3% this July and supporting family income growth for most owners.”

A state-wise analysis reveals that the highest percentage of foreclosure inventory to mortgaged homes was found in New Jersey (4.8%), New York (3.7%), Florida (2.7%), Hawaii (2.5%) and the District of Columbia (2.4%). The maximum number of completed foreclosures for the 12 month period ending July, 2015 took place in Florida (98,000), Michigan (47,000), Texas (33,000), California (27,000) and Georgia (27,000). In fact, these five states accounted for almost half of the total number of completed  foreclosures.

Commenting on the buoyancy in property prices, Anand Nallathambi, president and CEO of CoreLogic said, “The recovery in the housing market is also reflected in declining delinquency and foreclosure rates which, to some degree, reflects the progressive  clearing of crisis-era loans and the benefits of tighter underwriting standards over the past six years.”

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It’s Time for the Fed to Raise Interest Rates

By Charles H. Green

The Federal Reserve Board’s Open Market Committee meets Wednesday and Thursday this week, and the world’s eyes will be focused on the results: will they finally raise interest rates after two years of openly toying with the idea? I believe it’s high time to act decisively.

The FOMC faces a narrowing window of opportunities to  fulfill  their pledge to raise the U.S. Dollar sign graphfed funds rate this year. As defined in their monetary policy announcement in July, it all comes down to two criteria: 1) some further improvement in the labor market, and 2) reasonable confidence that inflation would move back to its two percent objective over the medium term. There were no other criteria mentioned, including international events, Chinese exchange rates, the Dow Jones Industrial Average (DJIA) or who wins the first Republican presidential debate.

Fed chair Janet L. Yellen has said that the Fed wants to raise its benchmark rate slowly over the next several years, gradually reducing its long-running stimulus campaign to bring the economy back to good health. The Fed has held short-term rates near zero since December, 2008.

The Fed has repeatedly delayed the beginning of that process, as economic growth has fallen short of its expectations. But as recently as June, most members of the Fed’s leadership — 15 of the 17 senior officials — indicated they planned to start raising rates this year.

The Fed Doesn’t Blink

The mid-August drama in China, which has seen its primary stock index drop significantly this year despite several overt strategies designed to buffet the fall, left investors shivering around the globe. The DJIA closed Friday at 16,433, climbing back about 800 points from its August plunge. Coupled with the devaluation of the Chinese Renminbi, many analysts have predicted that rate hikes will be pushed further down the road, possibly into 2016.

And in fact, William C. Dudley, the influential president of the Federal Reserve Bank of New York, said at a late August news conference that the case for raising interest rates had become “less compelling” in recent weeks. But as reported by the NY Times, even as Mr. Dudley suggested that a September rate increase was less likely, he cautioned against assuming the Fed would significantly alter its plans. He dismissed the possibility of a new round of stimulus.

“It’s important not to overreact to short-term market developments because it’s unclear whether this will just be a temporary adjustment or something more persistent that will have implications for the U.S. growth and inflation outlook,” Mr. Dudley said.

The following week Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, in a calming speech delivered in Berkeley, CA said “I expect the normalization of monetary policy — that is, interest rates — to begin sometime this year.” Mr. Lockhart noted some of the factors that are roiling markets, including the rise of the dollar, China’s currency devaluation and falling oil prices. But he said the Atlanta Fed expected the economy to continue its expansion, including adding jobs.

Some Voices Defend Holding Rates Down

The volatility of financial markets over the last few weeks contrasts with the stability of domestic economic growth over the last several years. The Fed is focused on that broader picture, and while the pace of growth remains sluggish by past standards, central bank officials have suggested repeatedly that they regard it as good enough.

But there are still plenty of voices arguing against a rate hike. In an opinion published in the Financial Times, former treasury secretary Lawrence Summers pushed back hard.

Said Summers, “Why, then, do so many believe that a rate increase is necessary? Pressure comes from a sense that the economy has substantially normalized during six years of recovery, and so the extraordinary stimulus of zero interest rates should be withdrawn.”

“Whatever merit this view had a few years ago, it is much less plausible as we approach the seventh anniversary of the collapse of Lehman Brothers. It is no longer easy to think of economic conditions that can plausibly be seen as temporary headwinds. Fiscal drag is over. Banks are well capitalized. Corporations are flush with cash. Household balance sheets are substantially repaired,” he continued.

Much more plausible is the view that, for reasons rooted in technological and demographic change and reinforced by greater regulation of the financial sector, the global economy has difficulty generating demand for all that can be produced. This is the “secular stagnation” diagnosis, or the very similar idea that Ben Bernanke, former Fed chairman, has urged of a “savings glut,” he continued.

His conclusion: “Satisfactory growth, if it can be achieved, requires very low interest rates that historically we have only seen during economic crises. This is why long term bond markets are telling us that real interest rates are expected to be close to zero in the industrialized world over the next decade.”

Some Argue for Higher Rates

For what it’s worth, the International Monetary Fund has also expressed concern that the Fed, by raising rates, could increase pressure on developing economies. But on the proverbial other hand, others argue that demonstrated growth justifies a return to normalized rates.

For all the zigs and zags of economic data over the last couple of years, the underlying growth rate has not deviated much from about 2.5 to 3 percent annually, according to Nariman Behravesh, chief economist at IHS, a private research and forecasting firm, as quoted in the NY Times. “Historically, this is a modest growth rate,” he said, explaining that the American economy now faces what he termed “speed limits,” including the retirement of the baby boomers, slower population growth and weak productivity gains recently.

“Would we like to see faster growth? Of course,” said Mr. Behravesh. “But we’re growing twice as fast as Europe and three to four times as fast as Japan. For a mature economy, this is about as fast as we can grow, and it’s something we can feel good about.”

The most forceful voice pressing for a rate hike comes through a NY Times opinion by business writer William D. Cohan. In his words, “Yes, it would be a little painful to start having to pay a little more for short-term borrowing and, yes, the net worth of Wall Street billionaires might increase at a slightly lower rate, but it looks as if the moment is at hand to end the morphine drip.”

The case for raising rates is straightforward: Like any commodity, the price of borrowing money — interest rates — should be determined by supply and demand, not by manipulation by a market behemoth. Essentially, the clever Q.E. program caused a widespread mispricing of risk, deluding investors into underestimating the risk of various financial assets they were buying,” he continues.

His conclusion: “The only way to return the assessment of risk to something resembling normalcy is to stop the manipulation. That requires nothing less than serious intestinal fortitude from the Fed and a willingness to raise interest rates in the face of determined opposition from Wall Street.”

Commercial Lenders Hang in the Middle

If you aren’t on Wall Street, but sitting in a Main Street bank trying to maintain a healthy loan portfolio, the interest rate discussion carries much different implications. First of all, it’s about income. The zero-rate policies have kept the Prime Rate–the predominate interest index used by community banks–stuck at 3.25% since 2008. That has restricted a lot of revenue that could have helped recover from the crash easier, and generated better profits and compensation.

While the surviving banks have mostly recovered, today they’re sitting on loan portfolios that are priced well below plenty of the underlying risk that they represent. As rates rise, a new element of risk will enter many of these assets and could tip some borderline deals over into default. Another immediate impact will be the tightening of loan qualifications, as the price of debt rises, so will the capacity required to repay it in anyone’s financial analysis.

But all that said, I personally think that higher rates will be beneficial to the greater economy. Upward pressure on inflation would stimulate more growth than putting easy money into the hands of many borrowers with marginal capacity to borrow. This condition can prove disastrous as eventual rising rates exposes their weaknesses.

Pushing inflation higher will spur people to act sooner to buy major purchases like cars and houses, and provide a more reasonable return on risk for main street banks. It may even push some wages higher and create more competition for talent, which will benefit plenty of business developers.

What about Wall Street? They’ve had multiple “taper tantrums” and have made plenty–PLENTY–of money over the long ride of next-to-free cash. Maybe taking the DJIA back down to where the price of equity more soberly reflects the actual value of the underlying companies would be a good thing.

What do you think?

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SBA Loan Approvals Sailing Past Record

By Charles H. Green

With the days of FY 2015 counting down to less than three weeks, it’s obvious that the 7(a) loan guarantee program will shatter all previous records, most accurately measured by the agency’s loan approval statistics, which are published weekly. SBFI tracks these statistics in an effort to keep the industry apprised of trends that impact the program.

SBA publishes a monthly “Lending Statistics for Major Programs, and as of August 31st, Record-breakingthe results reflected the end of the eleventh month of FY 2015. This report provides rolling year-over-year loan approval statistics for the 7(a) and CDC/504 loan programs broken down by the respective categories of policy-targeted penetration. The overall SBA lending program volumes and related 504/CDC program senior debt year-to-date, crossing the $25 billion mark with one month remaining in the fiscal year.

The 7(a) program continued its strong showing in FY 2015 with total loan approvals in $21.4 billion, a 24 percent jump over the same period at 8/31/14 ($17.3 billion). In FY 2014, all SBA financing programs started slowly after the federal government’s shutdown, but these results are about 32 percent higher than FY 2013 as well.

Previously, the best year for SBA 7(a) lending reached $19.64 billion in FY 2011, when the loan guarantee was increased to 90% and borrower guarantee fees were waived as part of the federal stimulus to end the recession.

There were 57,386 approved 7(a) loans through August, 22 percent ahead of the number in YTD FY 2014, and 36 percent ahead the same period in FY 2013. The average loan size through the month was $372,306, which is about $5,000 higher than it was this month last year.

A graphical illustration of all SBA monthly loan approvals is found in Capital Views.

The spiked growth in approved loans for less than $150,000 continued in August, climbing to 23 percent over the same dollars approved in FY 2014 to $2.06 billion, with the average loan size falling about one percent to $60,770. This was the second year SBA waived guarantee and lender fees on loans less than $150,000.


Have you responded to our 2016 SBA Lending Outlook Survey yet?
Click here to complete a brief survey to help us understand and share your expectations for growing your SBA loan business in FY 2016!


Meanwhile the total volume of approved CDC/504 loans rose in August for the to $3.8 billion, for the fifth consecutive month of topping the FY 2014 lending level, and finished the month more than 2% ahead of the same period in FY 2014, reflecting continued improvement. That volume is about 18 percent behind the program’s YTD mark in FY 2013 at $4.7 billion.

The total number of approved CDC/504 debentures was 5,247 through August, which is about -1.7% behind the number of debentures at this point last year. But the CDC/504 program’s average debenture size increased again this month with an average debenture at $739,547, more than four percent higher than last year’s average and nine percent higher than the average in FY 2013.

Total YTD approved SBA program dollars are $25.2 billion through 62,633 loans, with an aggregate impact with 504 first mortgages of $30.96 billion. The average loan size overall is $403,071, which is slightly higher than FY 2014 and smaller than the year before, given the growth in smaller loans. See total program approval rates here.

Read more results at SBA.

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Small Businesses Borrow Slightly Less in July

By Ravinder Kapur

In the month of July, small businesses lowered their borrowings marginally, as reflected in the Thomson Reuters/PayNet Small Business Lending Index, which fell to a level of 145.2 from 146.4 in June. Despite this minor fall, the index, which measures the volume of small business loans issued over the past 30 days, is at its second highest point since it was launched in 2005, with the highest level being achieved in the previous month.

Reuters reports that this index is acknowledged as a good indicator of the expected GDP Thomson Reuters-PayNet Small Business Lending Index July 2015trend in the country as small businesses have quicker response times to the changing market environment. Over the years, growth in the Small Business Lending Index has preceded growth in GDP by two to five months. A healthy index is also an indicator of capital spending and job growth.

PayNet founder Bill Phelan says, “This is showing some strength–while foreign markets are falling, while corporations are pulling back on their investments, we’ve got this small business economy anchoring the U.S. economy.”  Small businesses have “a lot of capital to borrow, a lot of capital to invest more when the opportunity presents itself,” Phelan said. “That means there’s a lot of runway for GDP expansion.”

The index is based on data collected from 325 U.S. lenders and includes financing to key sectors like transportation and construction. It had fallen to a level of 65 in 2009, after which it began a gradual climb to reach its highest ever point in June, 2015. Even though there is a small decline in July, the Small Business Lending index is still 13% above the level it was in the same month of the last year.

The record levels achieved by the Small Business Lending Index indicate that private enterprises are positive about their prospects and lenders are equally confident regarding the performance of the economy. The slight dip in the index in July does not take away from the overall trend and the expansion in the country’s GDP can be expected to continue on the basis of the impetus it is receiving from the growth in small businesses.

Have you responded to our 2016 SBA Lending Outlook Survey yet?

Please click on the link below to complete a brief 10-question survey to help us understand your expectations for growing new SBA loan transactions in FY 2016 from the perspective of the important role you play.

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How Do You Feel About SBA Lending in 2016?

By Charles H. Green

Every year banks, CDCs, credit unions, specialized lenders and thousands of service providers play a vital role as a partner with the U.S. Small Business Administration to help tens of thousands of small businesses start and grow across the country. Loans to finance buildings, equipment and working capital help to create jobs and fund business activity that drives the American economy.

FY 2015 is wrapping up as a banner year for the SBA 7(a) program, particularly with the New SBAsurge in dollar volumes for regular loans, and in the numerical growth for loans less than $150,000. But the 504/CDC loan program only began to reverse a couple years of decline in the third quarter, after struggling through the first half.

 

What lies ahead?

And each lender, service provider and policymaker who’s concerned about ‘small businesses’ must plan, budget, organize their activities to meet the estimated demands and opportunities before them. But to do so there has to be consensus in each organization about what lies ahead for the next year in their economic market, portfolio and potential loan growth.

The Small Business Finance Institute wants to gauge your outlook for making SBA loans in 2016, and we’re asking  SBA managers, business developers,  underwriters, service providers and other vital participants who play a role in turning loan applications into capital to respond.

Would you help?

Please click on the link below to complete a brief 10-question survey to help us understand your expectations for growing new SBA loan transactions in FY 2016 from the perspective of the important role you play.

In appreciation for your participation, all respondents will get 15% discount on all SBFI group training courses through 12/31/15, and be entered in a drawing for a $100 Amazon Gift Card.

Click here to complete brief survey.

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Keeping Track of Small Business Finances

By Ravinder Kapur

Many small businesses find it difficult to manage their finances in a manner that helps them analyze their cash flows and adequately plan their business requirements. A large number of firms also find the maintenance of statutory accounting records to be a great challenge and leave this task to their accountants to tackle as best as they can. And as small business lenders know, some business owners simply ignore this task until they begin to search for third-party financing.

Taxation is an equally, if not more, challenging area with 85% of firms saying that they SBFI-financial-reportingcannot file their federal tax return on their own and pay a tax practitioner or accountant to do it for them. The National Small Business Association’s latest annual taxation survey finds that for 59% of organizations the most significant challenge presented by federal taxes is the administrative burden it puts on them. Consequently, over a third of these enterprises spend 80 hours per year and pay upwards of $5,000 as accountant’s fees.

A recent Forbes article argues that of the 30 million small businesses in the U.S. only 10% have up-to-date and reliable accounting information, with the remaining being unable to produce dependable financial statements. The lack of dependable data available with these enterprises has forced financial institutions like banks and insurance companies to adopt procedures which work around this problem.

As a result, a small firm requiring a loan would need to provide a great deal of information and submit a number of documents to the bank before funds are made available. In fact, the entire process would take 60 days on an average and would include requests for additional information time and again. The bank has no option but to follow a time-consuming process, as the information it requires to make a decision whether to extend a loan is usually not available in a usable manner from the firm.

Several companies have identified this problem and developed solutions to enable firms to manage their finances and provide real-time access to their financial accounts. BodeTree enables businesses to sync their banking transactions in a manner that transforms transaction data into complete cash-basis financial statements instantly.

Firms that use platforms like Xero, QuickBooks Online and QuickBooks Desktop can connect directly to BodeTree to obtain detailed reports giving them their spending pattern, cash availability and categorized transactions in a readily usable format. The software also provides income statements, forecasting tools and other reports that help businesses manage their performance.

inDinero is another solution-provider for small businesses, which uses their bank and credit-card information to provide an aggregated “dashboard” to monitor balances and expenses, as well as see financial trends over time. The software also allows users to manage their accounting, taxes and payroll on a single platform

There is a need for services like BodeTree and inDinero because these companies make available real-time information to enterprises, which they can then use to organize their finances and run their businesses. Jessica Mah, co-founder and CEO of inDinero says, “Our team of virtual CFOs, backed by our own automation software makes accounting a weapon and not a pain in the neck.”

If small enterprises are able to derive the full benefit these companies offer, they will be able to manage their finances better and also save time which they can devote to their business.

And commercial lenders can offer more competitive financing offers with the information they need readily available. Do you have any clients that might benefit from these services?

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Training More Important Than Ever in Competitive Environment

By Charles H. Green

Over the past several months, my articles have chronicled the steadily recovering economy, widening risk appetite of chief credit officers, and growing business loan volumes in every category. In the next few weeks I’ll be describing the extent of an all-time record approval volume for SBA-guaranteed lending this year, as another sign of a rapidly improving credit marketplace.

But how many lending organizations are struggling to get their share of these surging loan Trainingvolumes? How many chief credit officers are overwhelmed by the amount of work that they must personally contribute into each deal, due to being surrounded by less experienced staff? How many prospective business developers still demand top dollar for their services, only to deliver a high volume of average deals?

The lending industry is feeling the effects of years of neglecting ongoing training for their personnel, particular commercial lenders and underwriters, some of whose performance does not match their years in service. There are many reasons for the deficit of professional development, but new resources are available to provide a reasonable solution.

SBFI now offers an online training platform to deliver commercial lender training through streaming video-on-demand. The content is tailored to span the entire career of lending professionals, from new hires starting their first job, to the Board of Directors, who make the largest institutional credit decisions.

And this curriculum will continue to grow in an effort to offer courses to enhance every career in your lending operation and help the entire staff continue to build on their experience through peer mentoring. All training has been developed by seasoned lenders with ‘hands-on’ experience through banks and non-bank lenders alike.

SBFI’s innovative commercial lender training platform offers instructive presentations with many features including:

  • Accessibility–Professionally-produced streaming videos through the internet.
  • Comprehensive Content–Downloadable handout materials and course transcripts support viewer learning.
  • Convenience–Available 24/7 when you want to learn–say goodbye to disruptive webinars in the middle of the day.
  • Expertise–Led by seasoned, commercial lending experts, respected due diligence professionals, and other experienced business veterans.
  • Flexibility–Available for individual and group viewing.
  • Within budget–Training that never requires time out of the office or travel expenses.

Get to know SBFI and what we offer for commercial lenders here.

Learning is lifetime adventure–the very best people in any industry continue to improve their skills over the life of their career. Take the next step up to a new level of success with ongoing professional development.

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Shareholders Finally to Get Disclosure of CEO Pay

By Charles H. Green

The Securities and Exchange Commission (SEC) adopted a final rule that requires public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees. The new rule, mandated by the Dodd-Frank Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on “say on pay.”

The new rule provides shareholders with information to evaluate a CEO’s compensation, Loan Committteeand requires disclosure of the pay ratio in registration statements, proxy and information statements, and annual reports that call for executive compensation disclosure. These disclosure rules go into effect for the first fiscal year beginning on or after Jan. 1, 2017.

Why does CEO compensation matter?

Companies get some flexibility in meeting the rule’s requirements, for example, by being permitted to select the methodology for identifying its median employee and that employee’s compensation. The rule also permits companies to make the median employee determination only once every three years and to choose a determination date within the last three months of a company’s fiscal year. The rule does not apply to smaller reporting companies, emerging growth companies, or registered investment companies.

After years of resistence, the adoption of this rule–passed 3-2 along partisan lines by the commission–is  a victory for shareholder rights advocates, who’ve been fighting for the ability of shareholders to check executive compensation. Why is that a concern for shareholders? Namely because they own the company, with some owning a larger share than the Board of Directors as a group, and most owning more interests than the CEO.

A study by the Economic Policy Institute found that from 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period. For all of the bellowing about “shareholder value,” the study reveals that the C-suites have provided themselves with outsized pay, grossly excessive compared to the gains delivered to company owners.

More shocking is when you consider that these statistics represent pay to the same executives who directly, or through proxies like the U.S. Chamber of Commerce, howl in opposition to any suggestion of raising minimum wages for the lowest rung employees.

Consider that the average CEO-to-worker compensation ratio was 20-to-1 in 1965, and rose to 29.9-to-1 in 1978. From there, it grew to 122.6-to-1 in 1995, and was 295.9-to-1 in 2013, far higher than it was in the 1960s, 1970s, 1980s, or 1990s Shareholders did fare nearly so well in most instances.

What are they worth?

It goes without saying that for the high price tags, much is expected of these high-flying CEOs–and they get it. A compilation of CEO pay was provided by the NYTimes last year shows that pay packages and perks challenge the imagination as to what one would do with all the loot. There’s an accompanying story trying to reconcile that value to the companies, found here.

The ugly truth is that the tenure for the average Fortune 1,000 CEO is short, and their ability to deliver true long term value to shareholders is questionable. Compensation is generally determined by a board of directors, who themselves are CEOs or clubby members who often serve on a web of multiple boards with interlocking relationships. Sometimes expectations are not met and the price to start over can be steep–such as in the case of former Home Depot CEO Robert Nardelli, who was paid over $200 million to quit after disappointing shareholders while rival Lowe’s stock price doubled.

The new rule won’t instantly change any of these factors, but it will provide more open disclosure to company owners, employees and the world about what the corporate culture really is in the C-suite. This information which will empower them to more forcefully make changes where their values are not reflected in the companies they own or work for.

And more importantly, eventually stop over-paying those disclosed to be grossly overpaid for substandard performance.

Did you know SBFI offers commercial lender training–learn more here.

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Oil: Part of the Ongoing Adaptive Economy

By Charles H. Green

According to economist Robert Dye, America is in a “transitional economy” with considerable crosscurrents and volatility, which is leading us through an ongoing, rapid evolution, highlighted with the requirement of several complex adaptations by its participants. While he related his outlook to the global economy with many of these disruptive elements, such as technology, labor, housing and financial, I’ll focus on only one of the most dominant elements discussed: oil.

Dye is Senior Vice President and Chief Economist at ComericA Bank, and he spoke before U.S. Oil Production & Consumption, Monthly Dataan audience gathered for the third quarter economic forecast presented by the Robinson College of Business at Georgia State University recently.

Click here for a full-size copy of the nearly image, courtesy of ComericA Bank.

Why would a bank economist know anything about oil? Maybe it’s because this Dallas TX-based economist works for a bank that makes its footprint primarily in five states: Texas, California, Florida, Michigan and Arizona, which represents 31% of the U.S. GDP. And these five states include two of the top four oil producing states (TX #1, CA #4), the top three oil consuming states (TX, CA & FL), and the top auto manufacturing state (MI). Needless to say, they better understand oil.

Dye described the fast changing oil horizon predicated off of recent technological advances (extracting oil from shale), to the geopolitical theater (our old friend, Saudi Arabia). He described the rush of oil production in the U.S. as this new technology emerged as the ‘shale-gale,’ which had most economists predicting the return of a booming manufacturing sector in the U.S., such as we described one such viewpoint last September. That month, the average price of West Texas Intermediate crude oil sold for $92.58/barrel. This week that same oil is selling for less than one-half the price.

Who would have imagined just ten years ago that the ‘shale gale is contributing to the global oil glut? And if the U.S. and other five leading nations enter into an agreement with Iran regarding their nuclear power development, count on another 1 million barrels of oil headed to the market each day.

It’s notable that Saudi Arabia has responded to both the rise in U.S. oil production and falling prices with their spigot wide open. They’re charging hard to maintain global market share at any costs and replace the lost American exports with buyers in new markets. If history provides any guidance, they can manage that just fine, based on the decades they sold oil well south of $50/barrel.

Dye predicts that the days of $90-$100 oil may be over, which may greatly affect how much capital is deployed to exploring new wells in the U.S. While pricing bouncing between $50 to $60/barrel is workable, $40/barrel is different. Banking regulators have already set their sights on lending to this industry, cautioning lenders about the industry’s substandard condition that’s in the near term.

Long term depressed pricing will render U.S. oil producers as essentially the ‘swing market producers,’ meaning that they’ll kick in when shortages arise, but will fade away as production expands elsewhere. Our industry here likely will be required to adapt to switching online/ offline quickly in response to changes in the global supply, with a new goal changing from stabilizing prices to stabilizing revenues.

Oh yea, and all the talk about re-shoring our manufacturing base due to lower energy costs? Those rosy predictions are starting to abate as falling U.S. oil production will dent that potential, and the remainder of opportunity may be sapped up with the rising dollar on global currency markets.

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