Tag Archives: wall street

Prepare loan package, secure loan

Small businesses get loans in record numbers

A common complaint since the financial crisis began was that some of the Wall Street banks that were being bailed out by the federal government weren’t doing enough to help the mom-and-pop shops on Main Street.

“In 2008 when the recession hit, the impact on small business lending was pretty catastrophic,” said Greg Lehmann, managing director of Biltmore Bank of Arizona. “Not only did you have small businesses struggling with lost revenue and weakening balance sheets, but all the banks were retrenching and looking inward.  The unique element about the Recession was that it hit every business sector; small business, large businesses, banks, etc. Nobody was immune to its impact.”

In 2013, small business owners and entrepreneurs have a little more reason for optimism. So far this year, big banks are approving small business loans at the highest rate in more than two years, according to Biz2Credit, which calculates its monthly Small Business Lending Index using 1,000 loan applications made over its online lending platform.

“With an improving economy, Wells Fargo is growing new lending commitments, providing more dollars to help small businesses stay competitive today and for the long term,” said Jennifer Anderson, business banking manager for Wells Fargo Arizona. “The business owners who see increased demand for their products and services are investing in their businesses now. As business owners become more confident and find more opportunities to grow and improve their businesses, we expect to do more business.”

Wells Fargo literally puts its money where its mouth is. According to SNL Financial, the bank was the nation’s largest lender to small business in 2012, lending $32.8 billion to small businesses.

But Wells Fargo isn’t alone. If you look at recent reports, small business lending is up across the board:

* Biz2Credit found that big banks — those with more than $10 billion in assets — approved 15.9 percent of the small business loan applications in February 2013, up from 11.7 percent in February 2012. Small bank approval rates have also ticked up — 50.3 percent in February, up from 47.6 percent in February 2012.
* Government-guaranteed loans have increased 6 percent year-over-year in fiscal 2013. That represents $9.2 billion, an 18 percent increase over the dollars approved during the same period a year ago. Approvals in the last two years have set Small Business Administration records.

Despite the positive reports, the general belief is that small businesses aren’t getting loans, which isn’t true, said Dee H. Burton, executive vice president of Alliance Bank of Arizona.

“Yes, small businesses can get loans now,” Burton said. “At Alliance Bank, we have always been actively engaged in lending to small business — and we never stopped lending even through the toughest times of the Recession.”

What about the perception that lending standards have changed or tightened? That’s another misperception, bankers said.

“General underwriting guidelines have not really changed over the years,” Burton said. “Unfortunately, the Recession has made it more challenging for businesses to qualify. For most businesses, a reduction in revenue may have resulted in a negative impact on cash flow or resulted in a more leveraged balance sheet. Further, the value of assets which banks often look to take as collateral — equipment, real estate, accounts receivable, etc. — are not at the levels they were pre-Recession. All-in-all, these factors have impacted small businesses’ ability to meet the typical standards under which banks underwrite business loans.”

While Lehmann said banks were more willing to bend on some of the fundamentals prior to the Recession, he said banks always look to cash flow, collateral, and capital levels to make a credit decision.

At Wells Fargo, Anderson said lending standards have remained consistent. Before the bank extends credit, it looks for a business to show:

* Steady cash flow. Cash flow is a key indicator of a business’ financial health and its future prospects. When it can show reliable cash flow, we can see it has the resources to repay new loans.
* Debt load is manageable. Banks want to make sure a business has the ability to take on additional debt and is in a strong financial position to manage its debt payments.
* Good payment history. Payment history provides an important record of its ability to responsibly pay down debt.

As for lines of credit for small businesses, Ward Hickey, business banking manager for National Bank of Arizona, said, “Small business lines of credit are based on  business cash flow and collateral values. As both of these improve for small businesses in Arizona, the underwriting standards will ease and more small business lines of credit will be available.”

As the economy in Arizona continues to strengthen, bankers see a better environment for small business.

“We can point to a number of positive signs in small business lending,” Anderson said. “There is more small business activity in our stores, more small businesses are applying for credit, and loan delinquencies continue to decline.”

As businesses shift from survival mode to growth mode, the outlook for lending to small and medium-sized businesses — which Lehmann called “the life blood of the Arizona economy” — continues to be positive, which will help small businesses grow and add workers.

“Arizona will continue to be a growth state and businesses that have survived this Recession will be able to grow as the state continues to grow,” Burton said. “We see businesses are now investing in items such as new equipment and new expansion, which had been put on hold during the Recession. Businesses are also taking advantage of the current interest rate environment to fund their expansion.”

Lehmann agreed.

“As the economy continues to heal and grow,” he said, “so will the small businesses of Arizona.”

education.business

Apollo quarterly profit beats predictions

For-profit education company Apollo Group Inc. said Monday its fiscal second-quarter net income tumbled 79 percent, hurt by a drop in enrollment, but the results beat Wall Street predictions and Apollo shares jumped 7 percent in premarket trading.

For the quarter ended Feb. 28, the University of Phoenix parent company earned $13.5 million, or 12 cents per share, down from $63.9 million, or 51 cents per share, in the same quarter last year. Excluding restructuring charges and other one-time items, the company said its adjusted profit was 34 cents per share.

Revenue dropped 13 percent to $838.4 million, from $962.7 million in the year-ago period.

Analysts, on average, expected a profit of 19 cents per share, on $824.9 million in revenue, according to FactSet.

Apollo attributed the drop in profit to lower enrollment and higher marketing costs, which were partially offset by lower restructuring and bad-debt costs. Enrollment at the University of Phoenix fell more than 15 percent to 300,800, while new degreed enrollment dropped 20 percent to 38,900.

Apollo projected fiscal 2013 revenue of $3.65 billion to $3.75 billion, while analysts expect $3.73 billion.

The for-profit education industry enjoyed a big boom when the recession first hit, but student demand has faded. In addition, increased criticism of the schools, new federal regulations and the still-struggling economy have weighed on enrollments.

The drop in enrollment has dented Apollo’s profits, and the company said in October that it was closing 115 of its smaller locations to cope with lower enrollment and plunging profits.

Apollo shares rose $1.22, or 7.2 percent, to $18.26 in premarket trading.

US Airways Heritage

US Airways profits may exceed expectations

UUS Airways Group Inc. said on Wednesday that its flying capacity for the year will rise 2 percent, and an investor update suggested that its third-quarter profit will be bigger than Wall Street had been expecting.

US Airways has added flying capacity as it replaces old Boeing 737s with slightly larger Airbus A321s. It also completed 99.6 percent of its scheduled flights in September, which also boosts flying capacity.

For the third quarter, which ended on Sunday, the airline’s costs came in lower than expected, including a slightly lower price for fuel.

JPMorgan analyst Jamie Baker wrote that the results suggest US Airways will report a bigger-than-expected profit for the quarter. He wrote that the guidance suggests a profit of 90 cents per share, versus a consensus by a survey of analysts for 74 cents per share.

Baker wrote that some of the costs are simply shifting into the fourth quarter. That’s likely to produce a loss or maybe a break-even quarter, he wrote.

For the quarter, US Airways traffic rose 2.7 percent. Flying capacity rose 3 percent. Because the airline added more seats than passengers, its planes weren’t quite as full. Occupancy fell 0.2 percentage points to 85.8 percent.

Per-seat passenger revenue for September was flat compared to September 2011, the airline said.

For September, traffic rose 2 percent. Capacity rose 1.1 percent. That pushed occupancy up 0.7 percentage points, to 84 percent.

Shares of US Airways Group Inc., based in Tempe, jumped 99 cents, or 9.1 percent, to $11.87 in midday trading. They’ve traded between $3.96 and $14.51 over the past year, boosted by the airline’s improving financial prospects and its ongoing efforts to merge with American Airlines.

IPOs

To Create Phoenix Jobs, Resuscitate IPOs

Job creation in Phoenix is a critical issue that threatens our hope for a sustained economic recovery. While we have heard many suggestions for creating Phoenix jobs, we have yet to hear of the positive role that resuscitating the initial public offering (IPO) market can play on job creation. By taking a look back at successes of the past, perhaps it can help to resuscitate IPOs as we move forward to economic recovery.

1990s

  • Net creation of more than 20 million jobs in the United States
  • Average of 530 corporate IPOs per year (excluding funds, LPs, REITs and SPACs)
  • Nearly half of IPOS came from traditional America (neither venture capital nor private equity sponsored)

IPOs in the 1990s inspired confidence and created a source of capital that led to equity investment in private companies, giving rise to a “virtuous circle” of capital formation, job growth, innovation and increases in tax revenues.

2000s

From 2000 to 2009, we saw an average of only 126 corporate IPOs per year – down more than 76 percent from the prior decade, nowhere near enough to replace the 360 public companies that are lost annually to delistings.

Common sense dictates that when the number of IPOs declines, the availability of capital for job creation shrinks; when the number of companies de-listed from stock markets exceeds the number listed, jobs are shed. This “circle of destruction” undermines investment in private companies — considered the “foundation of job formation” — leaving behind a “foundation for unemployment.”

Consider that by 2000, unemployment had fallen to a mere four percent after an eight-year decline that coincided with the robust IPO market. Unemployment began to rise in the next few years amid the bursting of the dot-com bubble and the dissolution of thousands of businesses, but then ebbed once again from 2004-2007 as IPOs modestly reemerged. As we have seen, the credit crisis and the concurrent disappearance of IPOs in the past couple of years has been the backdrop for a sharp rise in unemployment.

2010s

The antidote is simple: restore the ecosystem that supported the allocation of capital to small Phoenix companies.

To do this we need to create a new stock market structure — subject to the same regulatory oversight and disclosure requirements that govern the NYSE and NASDAQ — that provides specifically for adequate economic incentives for Wall Street to return to the business of supporting small companies with research, capital and sales support. This new market would have minimum spreads of $0.10 for stocks below $5 per share and $0.20 for stocks trading at or above $5 per share, thus restoring incentives for brokerages to pursue profitability, while providing sufficient economics to support small cap liquidity.

The U.S. stock market once was the envy of the world — in large part because it fueled economic growth. Access to capital is the life blood of growing companies.

Resuscitating the IPO market for small cap businesses may not be the sole answer to Phoenix job creation, but it certainly should be part of every conversation.

For more information about resuscitating IPOs, please visit gt.com.

Enron

Enron: 10 Years Later

Enron.

Similar to “Black Tuesday,” “Watergate” or “9/11,” the term has encapsulated a series of events into a single word or phrase. It is arguably the most well-known, and most scrutinized, financial collapse in U.S. history. This is evidenced by the multitude of books and movies that have rehashed and referenced the collapse.

December 2, 2011, marks the 10 year anniversary of the company filing for Chapter 11 bankruptcy protection. Ten years later, the term is still synonymous with fraud and is, perhaps, more relevant than ever before.

The scandal that was brought to light triggered a domino effect that can still be seen today. Most notably, Enron ignited the Sarbanes-Oxley (SOX) Act. This act resulted in the largest overhaul of the financial markets since the Exchange Act of 1934. This overhaul intended to prevent, discourage and/or identify future collapses.

One of the many significant SOX requirements was believed to be strict whistle-blower protections and protocols for public companies. These protections and protocols were included to safeguard and encourage whistleblowers who found themselves in the midst of Enron-like situations.

Ironically, these future whistleblowers started to use Enron as a reference point in their own claims.  Having worked as a forensic accountant in a post-Enron environment, I have seen multiple instances where the whistleblower actually cited Enron in their anonymous letter or hotline report. This practice has led to the inclusion of Enron as a keyword for investigations alongside terms like “illegal,” “cheat” and “hide.” Many of the vulnerabilities that led to the company’s collapse are now “red flags” for fraud.

Enron has become the ultimate example for whistleblowers to point to and for forensic accountants to measure against.

In response to events in more recent years and even larger corporate failures, including the fall of Wall Street heavyweights and the surfacing of multiple Ponzi schemes, many of the SOX whistleblower protocols have been amended or replaced by the Dodd-Frank Act.

The most recent changes, which went into effect earlier this year, encourage direct reporting to the appropriate government entity, extend the anti-retaliation periods and also provide greater incentives in the form of cash rewards. Theoretically, the current environment will result in more whistleblower reports and presumably more references to Enron allowing the term’s relevance to live on.

[stextbox id=”grey”]For more information about the Sarbanes-Oxley (SOX) Act ignited by Enron, visit soxlaw.com.[/stextbox]