Tag: Banks

Willing But Not Always Able: The Latest on Small Business Lending

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

We hear a lot from small businesses about how hard it is to get a loan and a lot from bankers that demand from credit-worthy borrowers is down. Now a new study provides insights into the situation, by exploring the top reasons why banks are turning down applicants, along with plenty of other data. And because it includes asset-based lenders and other funding sources, it offers a wider view of just what’s going on in the financing landscape.

The study, from researchers at Pepperdine University, surveyed 1,430 borrowers, lenders and investors, looking at changes over the past six months. Since the most detailed analysis focused on banks and asset-based lenders, here’s a look at the most salient points:


Banks – Demand certainly does seem to be down, judging from responses from the 56 banks studied. About 11 percent reported an increase in applications over the past six months compared to 77.2 percent who had a decrease. But the quality of borrowers is up, according to 55.6 percent of those surveyed. That’s compared to 22 percent who reported a drop. And the number of approvals? That’s gone through the roof. About 76.5 percent reported an increase.
What are the reasons for turning down applicants? Top on the list is quality of cash flow. Almost 25 percent cited that as the reason. And 20.8 percent pointed to quality of earnings.

Asset-based lenders – The 52 asset-based lenders reported the mirror opposite, at least when it comes to demand. Sixty percent had an increase in applications vs. 8.7 percent who experienced a decline. Also while more lenders reported a drop in the credit quality of applicants, a majority saw an increase in the quality of borrowers who were approved.

As you might expect, the top reason for rejecting an application was insufficient collateral (30 percent). “In the weak economic environment, the valuation of collateral is going down,” John Paglia, an associate professor at Pepperdine and author of the study, said to me. Second on the list was quality of earnings (15.8 percent).

What’s it all mean? For one thing, asset-based lenders are attracting more interest from prospective borrowers, but the economy has done a number on their most important criteria, collateral. As for bankers, it seems they’re on the level when they say they want to make loans, but they can’t find suitable prospects.

Apparently when they do get a live one, bankers are more than ready to lend.

More Than a Few People Didn’t Heed the ABA’s Advice re: “Fair Value Sucks” Letters to the FASB

Just last week we mentioned the American Bankers Association and its efforts to undermine the FASB’s latest fair value proposal that, in the ABA’s mind, could bring down civilization as we know it.

Because of this danger, the ABA encouraged “investors” through email and on its website to write individual letters to the FASB, expressing their displeasure with the worst idea in the modern history of double-entry accounting. We say “investors” because the ABA not-so-subtly asked everyone (i.e. who felt the overwhelming urge to write Bob Herz & Co.) to refer to themselves as such.

Further, the ABA provided a template of a letter to send to the Board for the “investors,” however, it did warn to resist using the example as their own because A) this is far too important and telling the FASB that fair value pains you in the deepness of your soul and takes food out of your children’s mouths will be a far more effective narrative; and B) the FASB hates form letters. HATES. So much so that Bob Herz rips up all his gold stars that he gives for the constructive letters he receives and then your unoriginal ass gets negative points.

The group urges investors to “write your own letter — the FASB does not appreciate ‘form’ letters, and often discounts them in their analyses.”

Simple enough, right? Well, maybe. But In his column today, Jonathan Weil gives an example of one ABA soldier that wasn’t very good at following instructions:

Among the letter writers was Terry L. Stevens of Francesville, Indiana, who identified himself as a bank investor, as the ABA had suggested. He didn’t mention that he also is chief financial officer and executive vice president of Alliance Bank, a closely held lender in Francesville with $270 million of assets.

“As a bank investor, of utmost importance to me regarding the banks in which I own stock is their financial position, and transparent financial reporting is key in order for me to make investment decisions,” Stevens’ letter said. “With this in mind, I am writing to express my deep concerns and opposition to the portion of the proposal that requires all financial instruments to be marked to market.”

Stevens didn’t write those words himself. He copied them verbatim from a sample letter the ABA posted on its Web page. So, too, did a bunch of other bankers who submitted comment letters to the FASB opposing its proposal, notwithstanding the ABA’s warning that they shouldn’t do cut-and-paste jobs.

This had to be a mistake, right? This is far too important of an issue to the banks of this country that a mishap like this could just happen. Bankers are responsible people that take this stuff very seriously and would never risk going through the motions just to serve at the whims of their lobby’s voice…would they?

Stevens told me he didn’t have time to write his own letter from scratch. “The points that I grabbed out of their paragraphs did a good job of explaining how I felt about the situation,” he said.

Oh.

Stealth Bankers Bomb as Anti-Reform Crusaders [Jonathan Weil/Bloomberg]

Accounting News Roundup: BP in Talks to Sell Assets, Including Alaska Ops; Koss Lawsuit Details Embezzlement ‘Spurts’; The Estate Planing Debacle | 07.12.10

BP Mulls Selling Off Billions in Assets [WSJ]
“BP PLC is in talks with U.S. independent oil and gas pron a deal worth as much as $10 billion that could include stakes in BP’s vast Alaska operations, according to people familiar with the matter.

A deal, which would go a long way to helping BP cope with the financial stress of paying for the clean-up of the Gulf oil spill, could be reached in the coming weeks, though there is no guarantee it will succeed, one of these people said.”

Bank Profits Depend on Debt-Writedown `Abomination’ [Bloomberg]
This abomination has an official name, SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities

“Bank of America Corp. and Wall Street firms that notched perfect trading records in the first quarter are now depending on an accounting benefit last used in the depths of the credit crisis to prop up their results.

Bank of America, the biggest U.S. bank by assets, may record a $1 billion second-quarter gain from writing down its debts to their market value, Citigroup Inc. analyst Keith Horowitz estimated in a June 23 report. The boost to earnings, stemming from an accounting rule that allows banks to book profits when the value of their own bonds falls, probably represented a fifth of pretax income, Horowitz wrote.”

Koss embezzlement ran in spurts, lawsuit says [Milwaukee Journal-Sentinel]
The most impressive “spurt?” $478,375 over three days in 2006. According to Koss’ lawsuit against S-squared and Grant Thornton, $145,000 also disappeared from the petty cash fund over the years, amongst other “unauthorized transactions.”


Bias At Work: To Sue or Not to Sue? [FINS]
Harassed? Discriminated against based on age, sexual orientation, race et al.? Of course suing your employer is an option. This is America after all, where the opportunity to slap someone with a lawsuit is your god-given right. But is it always the right move?

Bolt running from the taxman – Usain snub for British meeting [Daily Mail]
The fastest man in the world would prefer to keep a little money for himself, “Under present tax rules, if Bolt competes once in Britain and only five races elsewhere, the British taxman will demand one-sixth of everything he earns, whether in Britain or not. His taxable earnings would not only include his considerable appearance fees but also his hefty endorsement contracts.”

The Big Four’s UK Firms Pick Up Non-Executive Directors — And Then …? [Re:Balance]
Jim Peterson expands on his thoughts about the Big 4 non-executive directors in the UK, “Not only can good governance not be inflicted or imposed, in other words, because resistant leaders will find ways to disturb or subvert the purpose, but a virtuous culture will display its legitimacy without the need for pietistic overlays.”

Too Rich to Live? [WSJ]
The estate tax debate has gotten even more morbid than it would ordinarily be, ” ‘You don’t know whether to commit suicide or just go on living and working,’ says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year.”

The ABA Is Encouraging Everyone to Be Original in Their “Fair Value Sucks” Emails to the FASB

Banks hate the FASB. This is understood. They’re especially bent out of shape these days because the Board recently put out its latest fair value proposal that requires them to carry their loans at fair value. Bob Herz knew that this was going to cause hella-belly aching although he may not have predicted the virtual assault that was coming.

Banking lobbyists have launched an e- mail and Web campaign to mobilize investors against a proposed expansion of fair-value accounting rules that may force banks such as Citigroup Inc. and Wells Fargo & Co. to write down billions of dollars of assets.

The American Bankers Association opposes the Financial Accounting Standards Board’s plan to apply fair-value rules to all financial instruments, including loans, rather than just to securities. The group says the rule could make strong banks appear undercapitalized.

The association’s website, noting that FASB’s stated mission is to serve investors, provides a sample letter for people writing to the board and suggests they focus on why the proposal isn’t “useful for investors.”

As you can see, the banks are bringing out the big guns, although this not unfamiliar territory for the FASB. Lynn Turner, a Senior Advisor and Managing Director at LECG and former Chief Accountant SEC wrote in an email to GC, “This campaign is very similar to the efforts of the technology companies campaign against the FASB in 1993-95 to prevent rules that would have required those companies to expense the value of their stock options, something that ultimately led to investor losses and problems in the markets.”

The FASB prevailed in that particular battle but the ABA is wise to their ways, encouraging everyone to resist going through the motions on this one:

The association’s Web page, titled “Guidance for Investors Regarding FASB’s Mark-to-Market Proposal,” includes a sample letter to the board “for educational purposes only.” The group urges investors to “write your own letter — the FASB does not appreciate ‘form’ letters, and often discounts them in their analyses.” Those who comment should “let FASB know that you are an investor,” the ABA says.

So resist the urge to copy and paste anti-FASBites. They won’t really know how deep your loathing is for MTM if you go with the standard letter.

U.S. Banks Recruit Investors to Kill FASB Fair-Value Proposal [Bloomberg BusinessWeek]

Are Big Banks Really Helping Small Business?

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

In the latest move by a big bank to make itself into a friend to small business, Chase recently announced a program to offer incentives to small companies for hiring. But the actual benefit to most small businesses is hard to see.


Specifically, the bank will lower its interest rate on new lines of credit by 0.5 percentage points for each new hire, up to three employees, for the life of the loan. The offer is available to business owners who are approved for a line of credit of up to $250,000 or existing business customers who increase their line of credit by at least $10,000. And if you open a business checking account, you get an additional half percent discount on your loan rate.

A typical interest rate on a line of credit is 6 percent. According to the bank, if you choose the whole ball of wax – take the discount for three hires and open a checking account – you’ll lower that to 4 percent. And counting the discount for a new checking account, small business owners can save about $4,000 over three years on an outstanding balance of about $65,000.

Trouble is, that’s an offer most businesses are likely to refuse. Those already planning to hire and that are in good health might take advantage of the deal. In fact, they’d be silly not to. But the offer is hardly enough to inspire a business to hire if it wasn’t going to do so already.

What the offer might accomplish is to help Chase seem like a nice institution, not the greedy enterprise that helped bring down the economy. And it’s hardly the only attempt by Chase, or other banks, to do something to lift their image, something I’ve written about before. For example, last year, Chase unveiled plans to increasing lending to small businesses by $4 billion to a total of $10 billion. Bank of America recently said it would buy more from small businesses. In May, Citicorp launched a $200 million fund to boost small-business lending in low-income communities. And of course, last year, Goldman Sachs announced its own $500 million small-business fund.

It’s also a way to attract healthy businesses at a time when loan demand is down.

So a win-win for Chase. Not so much for small businesses.

Accounting News Roundup: G-20 to ‘Stabilize’ Debt by 2016; Auditors May Be Forced into Whistleblower Role on Banks; Yes, Taxes Are Historically Low | 06.28.10

G-20 Agrees to Cut Debt [WSJ]
“The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and ‘stabilize’ their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.”

Once you catch your breath from laughing, the President also cited the tax code specifically and his threatening to put some (i.e. Congress) in a tight spot:

“They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year15, would be at an “acceptable level.” President Obama said that next year he would present “very difficult choices” to the country in an effort to meet deficit goals.

The president cited his disappointment with the U.S. tax code. ‘Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, ’cause I’m calling their bluff,’ Mr. Obama said.”

Bank auditors eyed for whistleblower role [FT]
A paper from the UK’s Financial Services Authority puts forth the discussion of requiring auditors to work more closely with regulators on irregularities found during the bank’s audit engagement.

“Experts say bank executives are nervous about the prospect of increased bilateral discussions between regulators and auditors. Auditors have been fearful the paper could thrust the profession into a regulatory spotlight it has so far avoided.”

Koss Fraud: We didn’t bother to look at the endorsements on our own checks, but Grant Thornton should have! [Fraud Files Blog]
Fraud sage Tracy Coenen presents her latest view on the Koss fraud mish-mash and how Koss management has managed to make themselves “look like absolute morons.”


BP Loses $22 Billion in Legacy of Share Buybacks [Bloomberg]
“The sum represents the hole after the 52 percent plunge in BP shares since the Deepwater Horizon exploded and sank, resulting in the worst oil spill in U.S. history. BP bought back more than $37 billion of its stock in a bid to return money to investors between 2005 and 2008. Those shares are now worth $15 billion, excluding dividends.”

Martin Ginsburg, Noted Tax Lawyer and Husband of Justice Ginsburg, R.I.P. [ATL]
Mr Ginsburg was a tax law professor at Georgetown for many years and was known for his great sense of humor, as evidenced by his faculty bio, noted by our sister site, Above the Law:

Professor Ginsburg is co-author, with Jack S. Levin of Chicago, of Mergers, Acquisitions, and Buyouts, a semi-annually updated treatise which addresses tax and other aspects of this exciting subject. The portions of the treatise written by Professor Ginsburg are, he is certain, easily identified and quite superb.

Open Letter to the Securities and Exchange Commission Part 9: Overstock.com’s Excuses Simply Don’t Add Up [White Collar Fraud]
It appears Sam Antar has caught Overstock.com in another disclosure snafu but this time it isn’t really clear whether the company gave the wrong excuse, lied to the SEC or simply doesn’t know what they’re doing, “Overstock.com’s 2008 10-K report claimed that a reportable “gain contingency” existed as of November 7, 2008. However, the company contradicted itself and claimed to the SEC reviewers that reportable reportable ‘gain contingency’ did not exist on November 7, 2008.

If Overstock.com’s 10-K disclosure is true, the company’s explanation to the SEC Division of Corporation Finance can’t be true. Likewise, if Overstock.com’s explanation to the SEC Division of Corporation Finance is true, the company’s 2008 10-K disclosure can’t be true.”

Accounts bodies revise workplan [FT]
Convergence 2.0.

Today’s taxes aren’t too bad [Don’t Mess with Taxes/Kay Bell]
Kay Bell provides some perspective on tax rates over the last century. The following graphic should help clear up any confusion.


Bring on the Reform, Banks Will Continue Doing Just Fine

“Despite the reality of impending financial reform, banking and financial services executives are bullish about their business prospects in the current year and 2011, with many investing for long-term growth and specifically focused on traditional services, emerging technologies and M&A as a means to generate growth.”

~ Scott Marcello, deputy leader of KPMG LLP’s Financial Services practice.

PFF Bancorp Creditors Want to Probe KPMG So They Can Determine if They Can Sue KPMG

In anything is better than the shit BP has on its hands news, Reuters reports that creditors of PFF Bancorp Inc are requesting permission from a U.S. Bankruptcy Court in Delaware to snoop around “information in KPMG’s possession” to find out what the firm knew about PFF’s over-leveraged, under-capitalized, risk-loving ways.


The company’s committee of unsecured creditors wrote in their request that “Information in KPMG’s possession may support potential claims against third parties and against KPMG itself, if, for example, it becomes apparent that KPMG knew or should have known at an early date of any overly-aggressive or inadequately-controlled loan practices of the (company).”

So in other words, PFF would like to – pretty please – sue someone’s ass and they’d like to confirm whether or not KPMG will be a good candidate for said ass suing. So assuming the bankruptcy court gives them the thumbs-up, PFF will send in the hounds to find out what’s what. And they’ve covered themselves nicely by using the wonderfully subjective “knew or should have known” so KPMG’s only option will be to invoke the “we were duped” excuse, which isn’t such a flattering option.

KPMG didn’t respond to Reuters’ request for comment or our email but we’re guessing they’re less than enthused about sharing what is in their audit workpapers. Not necessarily because the documentation will have a smoking gun but more so because they might discover that the partner on the engagement has a bad habit of doodling and that’s just embarrassing.

PFF Bancorp creditors seek probe of auditor KPMG [Reuters]

Accounting News Roundup: Ernst & Young Expresses ‘Sympathies’ to Equitable Policyholders; ABA: Fair Value Will Result in ‘Craziness’; Annoying Is a Vital Accountant Trait | 06.04.10

E&Y pays out almost £3m following Equitable verdict [Accountancy Age]
“E&Y successfully contested a claim they were not objective in their audit of the firm. However the JDS finding that the 1999 Financial Statements from Equitable did not show a true and fair view, still stand. The firm extended ‘our sympathies’ to policyholders of Equitable Life, who have been impacted by the near-collapse of the company.” Is expressing sympathy a new strategy for E&Y?


FASB Exposure Draft Alarms Bank CFOs [CFO]
What kind of alarm you ask? So alarming that a lobbyist spoke out against it with statements like, ‘aw-dropping’ and ‘You don’t want that craziness in your financial statements.’ That’s the words of the American Bankers Association’s Senior VP of Tax and Accounting who was hospitalized with cardiac trouble.

CFOs were a little less sound-bitey, but still aren’t jumping for joy over the proposal, telling CFO “I don’t see how that improves transparency” and “[FASB] they will end up with is a situation where there is a ton of judgment involved.”

Field narrows in race for top Deloitte job [Times Online]
The Times Online is having fun speculating about the new Deloitte CEO in the UK, now that Vince Niblett, “The early favourite” has been appointed as the head of audit there. It’s a three horse race according to the Times, with David Sproul, head of tax, and Martin Eadon, a senior audit partner also rumored to be taking the head spot after John Connolly retires next year.

TaxProf Blog Crosses 10 Million Visitor Mark [TaxProf Blog]
And counting…congrats Paul!

Friday tip: embrace your annoying accountant [AccMan]
“In order to be a successful accountant you do not need to be ‘born dull.’ But you do need to be born annoying.”

People Need to Calm Down About the FASB’s New Fair Value Proposal

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

The accounting change for reporting the value of banks’ loans, which got the New York Times all hot and bothered yesterday morning, really amounts to a hill of beans, once you take a closer look at it.

In fact, the description in the article left me scratching my head on a couple of counts. How, for example, do banks write down the value of non-performing loans, as accounting rules require them to do, if they don’t mark them to market?


And what’s up with the tortuous explanation of how the Financial Accounting Standards Board decided to have banks mark to market the loans for purposes of the balance sheet but not for earnings? While I’m as big a fan as anyone of Jack T. Ciesielski, the accounting expert who publishes the investment newsletter, the Analyst’s Accounting Observer, his quote calling the decision a “smorgasboard” doesn’t really mean anything without some sort of context.

That context is pretty easy to provide, at least in the eyes of Charles Mulford, a Georgia Tech accounting professor and advisor to CFOZone.

As Mulford sees it, FASB simply is bringing information that’s already contained in the footnotes onto the balance sheet, specifically into the line item on that statement known as “other comprehensive income.” And this quite naturally has no impact on the earnings bank report on their income statements.

Currently, banks’ balance sheets carry loans at historical cost, less an estimate of the portion that is uncollectible, with fair value information in the notes, the accounting professor explains. The proposal would move the fair value information to the balance sheet by reconciling the cost of the loan with its fair value, he continues. But Mulford adds that there would be no change in the income statement, since that already includes any loan impairments. Instead, adjustments to fair value would be accounted for as a component of other comprehensive income, which is reported on the balance sheet.

“I view it more of a change in presentation than a change in accounting,” says Mulford.

In other words, investors who pay attention already understand this, so any complaints on the parts of banks should be seen as just an attempt to continue to fool those that don’t.

Accounting News Roundup: FASB Takes Another Stab at Mark-to-Market; Property Taxes Are States’ Savior; CFOs Prefer to Get Taxes Right | 05.27.10

Proposed Overhaul of Accounting Standards Contains Mark-to-Market Rule [NYT]
The FASB has rolled out MTM 2.0 and while the usual suspects have already started belly-aching, Bob Herz insisted that “The financial crisis reinforced the need for better accounting in this area.”

The new rule will require loans and loan-related instruments to be valued at their market value immediately, thus accelerating any losses that might occur. Losses will either be booked as a hit to earnings or as a reduction in the value of the asset. The Times quotes Jack T. Ciesielski of Accounting Analyst Observer, who reassures, “It will messier to read, but if you know what you are doing you can figure it out.”


The comment period (which should yield some interesting thoughts) will run through the end of September, after which the FASB will hold roundtables discussing the rule and then make any final changes. Institutions with greater than $1 billion in assets will be required to adopt the rule in 2013 while those with less than $1 billion will have until 2017.

The Property Tax: Unsung Hero [TaxVox]
States have their property tax revenues to thank for their budgets not being in an even bigger mess than they already are, according to TaxVox. “[P]roperty tax revenues have yet to fall both because the levy tends to be backward-looking (it takes a while for assessed values to catch up with reality on both the upside and the downside) and because local governments can raise rates. The strength of the property tax was the main driver of the small positive growth in overall state and local taxes for the fourth quarter of 2009.”

If states are lucky, by the time property tax rates adjust to the reduced home values, sales and income tax revenue may be on their way to recovery. However, it’s unlikely that tax revenues will return to their previous levels which means governments may have to continue (or maybe start?) to – God forbid – cut spending.

“I Didn’t Know What ‘$’ Means” Fails as Tax Defense [TaxProf Blog]
Who let this guy out of the lab? “I am unaware of the meaning of this symbol.”

Yahoo CFO Sees Annual Revenue Growth Of 7%-10% From 2011-2013 [WSJ]
Contrary to what some might believe, Yahoo is still in business and doing quite well, thankyouverymuch. CFO Tim Morse expects things to brighten up with revenue increasing 7-10% from 2011-2013, due mostly to increased advertising business. Yahoo’s partnership with Microsoft and Zynga (they make Farmville) are seen as key to the search engine competing with Google.

Survey finds tax departments more concerned with getting it right than aggressive tax planning [GT Press Release]
Grant Thornton’s latest CFO survey finds that they are more concerned with getting their taxes right than with paying less. Obviously the latter is a goal but considering the regulatory environment (i.e. Democrats are running things), it’s not the priority, despite what those people running for re-election might tell you.