|
|
 |
| Latest News |
|
How-to Guides | Ask the
Experts |
The Six Financial C's: Character, Capacity To Pay, Capital, Collateral, Conditions and Confidence
CHARACTER The degree to which a borrower feels a moral obligation to pay his/her debts, measured by the credit and payment history.
back to top *** For the full story, click here.
The SBA's Most Frequently Asked Questions
Does the SBA have business grants?
No.
back to top *** For the full story, click here.
The Synthetic Lease: Hybrid Facility Financing
How do you get the tax benefits of facility ownership without having anything appear on the balance sheet? You might consider a synthetic lease.
back to top *** For the full story, click here.
E-Commerce 101: Online Transaction Basics
If you are planning to open an online storefront and process credit card transactions through your site, you will need to talk to your host and your bank to make sure you have the following five elements in place to properly handle these transactions.
back to top *** For the full story, click here.
Smart Spending Now: No Substitute for an Early Start
In a teleconference, Lou Marcoccio, Year 2000 research director at the Gartner Group.
back to top *** For the full story, click here.
Financial Institutions: Covering All the Bases
On Feb 17, the Federal Financial Institutions Examination Council issued a set of guidelines to help banks, credit unions, and savings and loans to keep their customers informed about their Year 2000 status and contingency plans.
back to top *** For the full story, click here.
Handling Collections
When it comes to collecting on overdue accounts, a small business can be at a disadvantage.
back to top *** For the full story, click here.
Getting Ready for Taxes
If you are like most small business owners, the past few months have been filled with calls to the accountant in an attempt to organize finances and minimize tax liability.
back to top *** For the full story, click here.
Survival Depends on Cash, Not Just Profit
Obviously, a small business will not last long if it is not making a profit.
back to top *** For the full story, click here.
Charge Wisely -- Without a Lot of Debt
Many startups rely on credit cards to finance the business until the cash begins rolling in.
back to top *** For the full story, click here.
Small Business Financing: VC's and Banks
Looking for money to start or support your small business?
Avoid one of the biggest, and most common, mistakes -- don't ask the right people for the wrong kind of financing.
There are several categories of small-business funders, including small-scale venture capitalists, "angels," banks, factors, and "irrational investors." It is very important to present potential funders the right kind of proposals. Don't make a pitch for venture capital from a bank, for example, and don't ask a factor for the kind of generous terms that an irrational investor will offer.
back to top *** For the full story, click here.
How Much Capital Is Enough? One Small Business Capitalization Model
Undercapitalization is the single biggest reason new businesses fail. So how much capital is enough? Many tools for measuring needed capital are out there, but here's one that works particularly well for many small service and retail businesses.
Using this model, you'll need to begin with enough capital for a full year of operations. That's a common enough benchmark, but managing that initial capital is the real trick.
back to top *** For the full story, click here.
Small Business Financing: Factors, Angels, and "Irrational Investors"
Knowing the ground rules that different kinds of small business lenders follow is tremendously important if your goal is to go out there and find some money.
There are several categories of small-business funders, including small-scale venture capitalists, "angels," banks, factors, and "irrational investors." It is very important to present potential funders the right kind of proposals. Don't make a pitch for venture capital from a bank, for example, and don't ask a factor for the kind of generous terms that an irrational investor will offer.
back to top *** For the full story, click here.
Six Questions When Choosing a Clearing Service
"The payment processing arena is like an onion -- you just keep peeling back the layers and find that there is more," says Colleene Isaacs, vice president of business services with Segue Systems, a leading clearance service providers.
To help peel the onion with the least amount of tears, businesses should consider the following questions when looking for a transaction clearing system to integrate into their e-commerce plans
back to top *** For the full story, click here.
Factoring - Bootstrap Financing
Factoring isn't borrowing money, it's selling your receivables for cash. It's a more expensive way of raising money than normal financing, but provides quick cash on no collateral or earnings.
Financing monthly receivables of $100,000 would cost about $12,000 in yearly interest through a conventional line of credit -- if you qualify. Factoring those same receivables could cost anywhere from $36,000 to $60,000 a year.
back to top *** For the full story, click here.
Introduction to the RBFF Financial Guide
The Regional Business Financing Forum "RBFF" is a non-profit, all volunteer organization composed of the key commercial financing firms and organizations (public and private) doing business in the Virginia, Maryland, and the District of Columbia areas.
The RBFF focus is to: centralize all relevant, practical information and data on the financial firms doing business in the region; increase the access to and expedite the match-up between available business financial resources and companies that need expansion capital; provide a central forum for financial firms to develop and establish new business financial products, ventures, and joint efforts to meet the needs of regional business firms; and directly contribute to the expansion of business and economic growth for all regional firms at all stages of development.
back to top *** For the full story, click here.
Overview of Financing Options
It's a fact of life; your company needs capital to conduct business. Of course the best way to obtain it is through sales. Sometimes, however, you need other, more immediate sources. Different sources may be appropriate for different stages of growth. Start-ups often rely on family members, friends, or local associates. As you grow, you may need to turn to alternate sources such as Venture Capital. Once you have achieved a financial track record, you can turn to other sources such as Asset-Based Lending or Commercial Loans.
This section will help you to explore your financing options to meet your needs. We have listed descriptions of some of the major sources of financing options and when to use them. As this site develops, we will provide a more in-depth analysis of these options as well as a list of companies to contact for your financing needs.
back to top *** For the full story, click here.
Bank Financing for the Government Contractor
All government contractors regardless of their size or maturity, are dependent on adequate working capital/cash flow to support growth. Commercial banks are interested in providing that working capital financing. Even more, banks also are available as financial advisor-partners to assist in developing a financial strategy designed to meet a company's revenue and profit goals. Most important to the contractor, over the long term, bank financing provides the most stable and least expensive source of capital.
back to top *** For the full story, click here.
The Benefits of SBA Financing and How to Qualify
What is an SBA Loan?
An SBA Loan is a small business loan made by a local bank that is in turn guaranteed by the U.S. Small Business Administration. If the borrower defaults on the loan, the SBA will reimburse the bank for a percentage of the loan loss. The existence of the SBA's guarantee is an inducement for the bank to make loans on terms it would otherwise not make available.
back to top *** For the full story, click here.
Commercial Receivables Insurance
Every business owner seeks to minimize the financial risks inherent in his business operations and available profit opportunities. Every business capital source in fact will not only review your company for the degree of management success in this area, but in some cases will absolutely require it as a condition of financing. Examples abound -- key-man life insurance, liability and comprehensive type coverages for all hard assets, equipment, autos, and fixtures, surety and bonding for key employees, and life insurance to the extent of any mortgage indebtedness.
back to top *** For the full story, click here.
Owner Occupied Financing
"To be or not to be" was the philosophical question facing Hamlet in Shakespeare's famous play.
back to top *** For the full story, click here.
Commercial Real Estate Financing Through Insurance Company End Loans
Commercial real estate financing with respect to "investment properties" with third party "income streams" (as contrasted with owner-occupied transactions - "OR") have been and continue to be available.
back to top *** For the full story, click here.
The 504 Loan -- Intelligent Financing for the 21st Century
The 504 Loan is an economic development financing program for small and medium sized businesses that need to invest in space or purchase machinery and equipment to further enhance the growth of their business.
back to top *** For the full story, click here.
The Well-Structured Lease -- Your Link To Today's Technology
For each industry, indeed, for each and every company doing business today, there are advanced technologies or improved ways of accessing information that can make a positive impact on the success of that business.
back to top *** For the full story, click here.
Factoring --The Creative Alternative Financing Mechanism
The word "factor" comes from the Latin "factare" meaning "to make or to do".
back to top *** For the full story, click here.
Introduction to Investment Banking
Investment bankers function as intermediaries in financial transactions.
back to top *** For the full story, click here.
Alternatives to Taking the Big Step -- Taking Your Company Public
For the small to medium range company without the experience or expertise, the concept of taking the enterprise to the public market is often considered the ultimate corporate success.
back to top *** For the full story, click here.
Rule 504 -- Small Capitalist Tool
As part of its program to simplify access to the capital markets, the SEC adopted the Small Business Initiatives ("SBI") in 1992.
back to top *** For the full story, click here.
Selling a Business -- Your Chance To Reap The Rewards
One way or another, every business owner ultimately confronts the question, "What should I do with my business?" And the question inevitably raises a host of others: Should I sell to my employees? To a competitor across town? To a larger business? Should I turn the business over to my children? Should I move on to other interests, or retain a role in the business's future?
Like those that arise at other stages of a business career, these questions are challenging.
back to top *** For the full story, click here.
Private Equity Alternatives
New and developing enterprises are sometimes faced with the uncertain and difficult process of obtaining capital to build or grow their business.
back to top *** For the full story, click here.
A Venture Capital Analysis -- Frequently Asked Questions
Why should I raise venture capital?
What alternatives exist?
How do I find venture capital?
Which industries attract venture capital?
Does my company qualify for venture capital?
What should I expect from the due diligence process?
How will a venture capitalist value my company?
How will an investment be structured?
Why should I raise Venture Capital?
Most companies seek to raise venture capital to support or stimulate economic growth.
back to top *** For the full story, click here.
Financing Through a Small Business Investment Company
What is an SBIC?
Contacting an SBIC
How are SBIC financings structured?
Types of investments SSBICs
SBA guaranteed loans
According to the National Association of Small Business Investment Companies, SBICs have disbursed over $9 billion to over 65,000 small businesses in the U.
back to top *** For the full story, click here.
E-Commerce -- Flush With Cash
Venture capitalists are pumping billions into Internet ventures.
back to top *** For the full story, click here.
The Changing Financial Market Place
ECNs (Electronic Communication Networks) are rapidly changing the worlds Financial markets. Across the globe and across virtually all types of securities, ECNs are taking market share from more traditional exchanges. This week it seems many of these stories that have been brewing for several years have come to the forefront in bonds, derivatives, and in oil.
back to top *** For the full story, click here.
Royal Bank Chiefs Defend Bonuses
One reason occasionally cited to do a takeover is that of empire building.
Buying another firm expands your control and likely your paycheck. Such
have been the protests at Royal Bank of Scotland. Last year Royal
acquired National Westminster (NatWest). This year the bosses are having
to defend their higher pay. One big reason is that the merger has been
quite successful.
back to top *** For the full story, click here.
A Windfall From North of the Border Turns Sour
In the US a firm can engage in a tax-free spin-off (that is give the new firm to existing shareholders in the form of a dividend) so long as the parent firm has at least an 80% stake. (That is the firm is spinning off at least 80% of the entire new firm). Most firms that do a spin-off make sure that the deal qualifies for tax-free status. But because different nations have different tax codes, international investing can bring with it a higher tax-bill. For example Bell Canada’s spin-off of Nortel qualified as a tax-free event for Canadian investors but not for US investors who got left being forced to pay a large tax bill.
back to top *** For the full story, click here.
Focus: Index Mutual Funds
Index funds are boring but they are effective, but do you want to read
about them? If so The New York Times reviewed three books that all have
the same conclusion; Indexing is good for your wealth! (gee it sounds
like a Finance Class!) An amazing statistic from the article: since 1985
only 5 of 534 stocks funds have beaten the Vanguard Index fund and only
three have done so on a risk adjusted basis!
back to top *** For the full story, click here.
Money and Banking
Does the US stock market seem volatile of late? Goldman Sachs Chairman Henry Paulsen attributes some of the volatility to Regulation FD. He believes it is contributing to large price swings because firms are cutting back on their disclosures thus inadvertently increasing information asymmetries.
back to top *** For the full story, click here.
International Finance
Japan imposed emergency tariffs on some Chinese goods in an effort to protect domestic farmers from low cost imports. These temporary barriers are allowed by the WTO if they remain for less than four years. The purpose of this is to allow Japanese farmers to cut costs and get ready to compete against lower cost manufacturers. Of course as in any tariff, Japanese consumers will be paying a higher price in the interim. A cynic would stress the timing of this politically popular move just prior to Japanese elections.
back to top *** For the full story, click here.
Economics
First the numbers: US jobless claims rose, retail sales were down, consumer confidence fell, and for the first time in 5 years wholesale prices fell. The good news? Well if you believe the stock and bond markets, we may have seen the worst of the slowdown. Bonds fell suggesting a possibly strengthening economy.
back to top *** For the full story, click here.
How much is a dollar worth?
How much is a dollar worth? I am sue many of you have heard your
grandparents say that they remember when a candy bar was 5 cents or gas
was 25 cents a gallon. Economic History Services provides a cool site
that lets you see the impact of inflation.
back to top *** For the full story, click here.
Energy Markets
There will be more energy crises and the world can not longer count on drilling to find enough oil, that is the finding of a far-reaching Council on Foreign Relations report. The report also suggests that the US should not count of OPEC production increases as OPEC is running at closer to capacity than at any time in recent history. It urges the need for a plan to deal with these problems that faces the issues and does not try to sugarcoat the shortages. Critics are concerned that the report will provide President Bush more ammunition in his plan to open up Arctic drilling.
back to top *** For the full story, click here.
Corporate Finance
The board of directors is elected by shareholders to look out for the interests of shareholders. Us the small board and lack of independence at Amazon a part of their problems? (good description of inside and outside directors)
back to top *** For the full story, click here.
On the Contrary: Money Can Motivate. So Can Love of the Job.
Is pay a motivator, a reward, neither or both? You decide. The New York
Times has a good discussion on the issue.
back to top *** For the full story, click here.
The Great P/E Debate
Ratios and multiples are often used to value a stock. However, there are
many problems. For example, PE ratios change with interest rates,
different firms (and different countries) calculate earnings differently,
and growth must be taken into account. Patrick Dorsey of Morningstar lays
out some of these problems in an interesting and informative piece.
back to top *** For the full story, click here.
Mexico peso ends lower
When the US stock market falls many foreigners that sell convert their
dollars and repatriate the currency. The reverse also works. On Thursday
as US equity markets soared, the US dollar climbed significantly against
the Mexican Peso.
back to top *** For the full story, click here.
Forward Thinking about Reverse Mortgages
Reverse mortgages are when the bank pays you every month instead of you
paying the bank. How? You are effectively selling the house to the bank
but they do not take possession until after you leave the house (generally
through death).
back to top *** For the full story, click here.
Where Have All the Dealers Gone?
Swaps are a type of derivative contract where the two parties agree to
what amounts to a series of forward contracts. As such each party assumes
some credit risk (the risk that the other party will renege). As a
consequence of consolidation of financial intermediaries (notably banks)
the remaining banks are taking up a larger percentage of the market and
this concentration has many worried. One solution may be to have exchange
traded swaps whereby the intermediary could sell the contract (thereby
reducing exposure)
back to top *** For the full story, click here.
The Fed Rate Cut
This week it was easy: the Fed rate cut and subsequent market climb. First the statement
back to top *** For the full story, click here.
Analysis: On the Fed Rate Cut
One question that warrants attention is why did the Fed cut rates if in
fact the economy was turning around. The BBC suggests that the cut was
the result of a mounting consumer debt load. For example, did you know
that the average American has $8,000 in credit card debt alone? (FWIW
While no doubt still mind-boggling, this is a clear case of when the
median is a more relevant statistic as the average is apt to be biased
high by outliers). In a worse case scenario this debt could not be repaid
in a recession and would mushroom into a sort of a financial sector
meltdown. Thus cutting rates keeps the economy healthy and allows debt to
be repaid. Furthermore, due to variable rates charged on many credit
cards, borrowers will be able to continue to spend and thus help the
economy even more. CNNfn reports that the rate cut will save Americans
at least $1.2 billion over the next year alone.
back to top *** For the full story, click here.
Corporate Finance
Owning shares comes with certain rights. One of these rights is the right
to vote your shares for matters of importance to the firm. Thus, you can
oust management, approve takeovers, and elect directors. At times these
elections, called proxy contests, can become heated. Shareholders at
Independence Federal Savings Bank voted this week in one such heated
contest that had all of the drama of a soap opera. On one side is the
widow of the founder, on the other side is the founder’s daughter and
current CEO.
back to top *** For the full story, click here.
Ring Fencing: 2001
What is ring fencing you ask? It is the idea that separate corporations,
even under the same parent, are not responsible for the debts of the other
business units. Thus a holding company can have several well-financed
corporations that are shielded from the sick subsidiary. Of course this
does create conflicts of interest. For example, as soon as it becomes
apparent that bankruptcy at one unit is likely, the parent will want to
transfer as many assets out of the sick division as possible.
back to top *** For the full story, click here.
Investing: Short Selling
Shorting a stock means to borrow the shares from someone else, sell it,
and then after it falls in value, buy it back and return it. This can
only be done if the original investor (who owns the stock) has decided to
hold the stock 'in street name.' In street name shares are held for the
investor by the broker who then keeps track of who owns what shares. This
week Microstrategy asked its investors to not hold their shares in street
name because it makes it too easy for shorters.
back to top *** For the full story, click here.
The Economy, The Yield Curve And You!
Hat’s off to Dismal.com’s Micheal Burt for a great article on the yield
curve. The yield curve is a graphical representation of the yield to
maturity of various bonds of differing times to maturity. The yield curve
is generally classified as upward sloping, downward sloping, or flat.
(note the three main hypotheses to explain the yield curve are Liquidity
preference where investors have to be coaxed (though a higher yield) to
buy long term bonds, market segmentation (where the markets for the
various types of bonds are separate), and expectations theory (where the
implied forward rates suggest whet the market thinks future rates will
be). For the first time in roughly half a year the yield curve has gone
to upward sloping which suggests that an economic turn around may be here.
However, as the article points out, many things other than investor
inflation expectations are playing a role in the yield curve and any
forecast of the economy based off a yield curve is difficult at best.
back to top *** For the full story, click here.
SEC Head Addresses Analyst Issue
The SEC’s interim chairperson Laura Unger spoke out against conflicts of
interests among stock analysts. The classic example is the
often-discussed issue of the investment-banking arm influencing retail
analysts. Firms are supposed to keep the two separate with what are
called Chinese-walls, but these walls are notoriously porous.
back to top *** For the full story, click here.
Broadband Trading
Is broadband trading the next big thing? So far the trading in 'time on
the internet' is pretty slow, but its potential and promise is huge. One
thing holding it back is the development of standardized contracts and a
more advanced infrastructure, but Enron-Broadband is working on both of
these problems.
back to top *** For the full story, click here.
International Finance: ADR's
ADRs (American Depository Receipts) are a means of allowing foreign
investors to buy shares in a company without the company having to go
through the often difficult process of having shares listed in the foreign
lands. ADRs are not something new, they have been around since the late
1920s. As the Moscow Times reports, there are three levels of ADRs 'Level
1 allows shares to be traded over the counter without raising new capital,
level 2 gives access to exchange trading and level 3 is used to raise new
capital through the placement of new shares on an exchange.' Each move up
carries with it additional costs ranging from $40,000 for level one to
$500,000 for level three. The catalyst for this article is the Bank of New
York is facing new challenges from Deutsche Bank in the listing of Russian
ADRs.
back to top *** For the full story, click here.
Globalization, Quebec, Protests, And You!
From the meetings of the America Summit in Quebec, to protests in cities
around the nation (including in Buffalo), to strikes in India,
globalization continued to be debated this week.
In Quebec, the scene of the most widespread protests, anti-Globalization
protesters clashed with police and even stalled the opening of the
America’s Summit by a day. The Summit was the sight of talks to create a
free-trade zone for the entirety (Cuba excepted) of the Western
Hemisphere. In spite of the protests, officials did agree to go on and
reconfirmed the 2005 self-imposed deadline.
Why the protests? Many reasons. From some who fear environmental
controls will wane as trade barriers fall, to others who fear too-large of
multinational corporations, to others who feel that the pursuit of
profits will harm the individual worker. Are the protesters correct?
Yes and no, but overall no. Free trade generally makes everyone better
off but the transition can be a painful one as many are laid off before
the final positive outcome is realized..
back to top *** For the full story, click here.
Commercial Paper Ratings
Most of you have heard of bond ratings, but fewer of you may have heard of
commercial paper ratings. Commercial paper is short-term unsecured debt
instruments that large firms sell as a form of short-term financing. This
week rating agency Fitch issued new criteria on the ratings that are
designed to reflect the changes in liquidity that can come about when
financially sound firms take a hit. Firms now need to have more backup
capacity to get through possible liquidity crunches. While the article
does not say them by name, this is likely in response to Xerox’s problems
last year when they were locked-out of the commercial paper market. The
new requirements are a good example of the types of firms (industrial)
that have greater debt capacity.
back to top *** For the full story, click here.
Investments, Markets, And The BUY!
So much for Chinese Walls. The best proof yet as to why there are so many
more BUY recommendations than Sell recommendations. An amazing 88% of the
nearly 1000 analysts surveyed said they fear reprisals for giving sell
recommendations. And it appears there may be good reason for the fear,
31% of the firms surveyed in the other part of this study said they would
not use certain investment bankers if their analysts had issued sell
recommendations.
back to top *** For the full story, click here.
Best advice? DIVERSIFY!
It is not surprising given this year’s roller coaster market, that
volatility is up. However you may not have known how much! The average
movement in the S&P has been 1.25% the highest since it has been tracked
in 1950! With the aforementioned volatility some are questioning whether they have
the stomach to take the ups and downs of the stock market. Best advice?
DIVERSIFY! Diversification lowers the overall riskiness of the portfolio
and as this article points out can even offer higher returns than a group
of US large firms stocks.
back to top *** For the full story, click here.
Predicting Growth
Predicting growth is one of the most important things to do in pricing
stock, but unfortunately, it is also one of the more difficult things. How
can growth be predicted? The traditional academic way is to take the
plowback ratio times ROE. More advanced ways include regression, looking
at industry growth rates, and of course the old fashioned cross your
fingers and guess. Whatever the way, analysts often get it wrong.
back to top *** For the full story, click here.
Nasdaq, Becoming Corporation, Plans an Offering of Its Shares
The Nasdaq announced plans for its own IPO. The market is expected to
sell shares of itself publicly sometime next year. The fact that the market
planned on going public is not new as it has been rumored for months
(years in some circles) but it and other major US exchanges have never followed
through on these rumors. (The NYSE had plans in 1999 but have postponed these plans indefinitely.)
back to top *** For the full story, click here.
International Finance
Many nations try very hard to maintain a fixed currency exchange ratio.
Doing so reduces the risks of currency movements in the SHORT TERM, but
can lead to larger price movements when the central bank’s actions are
dwarfed by the size of the market and the Central bank must abandon its
pegged exchange rate. This may be happening now in Malaysia as the
central bank is reportedly running low on reserves. A better system? Let
the currency float and let market forces correctly value the currency.
Yes it is painful but in the long run the root problem is solved.
back to top *** For the full story, click here.
Purchase Power Parity
Purchase power parity is not a perfect fit. Purchase power parity is one
of the equilibrium conditions that influence exchange rates. It is based
on the idea of the law of one price. However it is not an exact fit in
that in the short ad intermediate term, inflation can differ from
expectations and that portion of the equilibrium is broken. For example,
since 1996 Mexican inflation has been 187% greater than inflation in the
US. However, the dollar has only strengthened by 101%. Thus, Mexicans
can buy relatively more in the US than they could only a few years ago.
One problem with this is that with the Peso over valued investors are
hesitant to invest in spite of Mexico being a lucrative market, so says
Trinity University economics professor Jorge Gonzalez.
back to top *** For the full story, click here.
Dr. Dre jacked for $20 Mil.?
Dr. Dre has settled his lawsuit with PricewaterhouseCoopers. The
rapper-MTV personality sued the accounting firm for not keeping better
track of his money. He accused the firm of allowing (and even helping in
some reports) others to take money from Dr. Dre’s accounts. The reported
(albeit unofficial) amount of the settlement was $15 million. Dre is
still demanding an apology and is supposedly not in it for the money.
back to top *** For the full story, click here.
Cash Flow
Why is cash flow so important? One reason is that it is less susceptible
to management’s earning games.
back to top *** For the full story, click here.
Just how low have some interest rates fallen?
Derivatives? Investments? Corporate? Convertible bonds can be thought of as a
combination of a straight coupon bond and a call option on the firm’s
equity. Recently several firms have issued convertible bonds with rates
as low as 0%! How is that possible? The value of the conversion
feature, which is effectively a call option, has increased with the
volatility of the underlying stock. (Remember the value of a call
increase with volatility).
back to top *** For the full story, click here.
Corporate Finance
Shell is trying to take over Barrett Energy Resources in a hostile bid.
However, like any unwilling target, Barrett is looking for someone to come
save them. One potential white knight was unmasked unintentionally when a
reported was inadvertently patched in to the wrong conference call and
ended up listening into a board meeting! The mistake led Oklahoma-based
Williams Company to be identified as a leading contender for Barrett.
Stay tuned. Shell has already raised their bid and appears willing to
fight. (This article is also worthwhile as it shows some of the factors
that lead to making bids: relationships with Shell, fit, as well as
financial flexibility.)
back to top *** For the full story, click here.
Bonds' Message of Hope
Many firms issued bonds this week as spreads between corporate bonds and
Treasury bonds narrowed on the feeling that maybe the economy will rebound
and that the worst is likely to be behind us. Firms thus rushed into the
market top try to take advantage of this opportunity.
back to top *** For the full story, click here.
Investments: Delisting Stocks
Slate asks and answers the question of what happens when a stock is
delisted. Short answer is that the firm can contest the delisting (to
generally no avail) and the shares will then be able to trade on the OTC
bulletin board market or as a 'pink-sheet' either way liquidity drops and
shareholders are hurt.
back to top *** For the full story, click here.
Energy Markets
In his soundest criticism yet of conservation VP Dick Cheney said that
conservation will not suffice as a national energy policy. Bush and
Cheney have long been pushing for increased drilling as well as more coal
and nuclear production. In a related story, Ford Motors came out and came
close to calling for increased standards on emissions and conservation.
back to top *** For the full story, click here.
Accounting News: Cost Vs. Current Cost
I have to admit that it takes quite a bit for me to say wow about an
accounting story, but this one deserves a WOW. Why? There is now talk as
to whether accountants should abandon the time honored historical cost
means of recording assets for a current cost means. Of course the problem
with this change (should it occur which is unlikely) is that it would open
the door for more accounting tricks and games.
back to top *** For the full story, click here.
Andersen Settles in Sunbeam Lawsuit
Andersen settles for 110 m in sunbeam lawsuit stemming from its bankruptcy
when Al Dunlop was at the helm. This is the second largest settlement
ever (Ernst and Young’s paid more for their role in Cendant’s problems.)
back to top *** For the full story, click here.
SEC's Disclosure Rule Causing Angst Behind Closed Doors
Does Regulation FD (Fair Disclosure) make the market more efficient? The
purpose of the rule is to level the playing field by making the
information available to everyone at the same time. However, one of the
unintended consequences has been that some firms are holding back
information. Therefore the price does not reflect this still private
information. (If anyone is interesting in pursuing this with me I have
several ideas on how to test it. Most notably with event studies designed
to test whether the market responses to public announcements are now
greater to than in pre-FD days.)
back to top *** For the full story, click here.
$11.9 Billion WorldCom Deal Sets Record
What do you do to sell a large amount of something? You lower the price.
This is what Worldcom did and the result was a quick sale of $11.9 Billion
in bonds (the amount was raised from the $7 billion first reported). The
bonds were priced nearly 250 basis points above Treasuries with a
comparable maturity. From a teaching perspective the deal was interesting
not only due to its size but also because the bonds were sold globally and
denominated in dollars, Euros, and British Pounds and had various
maturities.
back to top *** For the full story, click here.
International Finance
To paraphrase China's Minister of Information Industry Wu Jichuan:
Bubbles are not good for economy because they represent mispricing which
leads in inefficient asset allocation. For example, with too high of
stock price, (i.e. too low of a cost of capital) firms will invest in what
seem like positive NPV projects only to find that when the cost of capital
returns to its true level, the project is in fact value-lowering. (Indeed
this is one reason why some firms argue that book values should be used
even though this practice brings with it many more problems than it
generally solves.)
back to top *** For the full story, click here.
Investments: QQQ
ETFs (Electronically Traded Funds) have been a huge success. The biggest
success is in what has been nicknamed Cubes (QQQ). These are the
replication of the Nasdaq 100. Contrary to the predictions of many, these
Cubes remained very successful (as measured by volume) even when the
Nasdaq was falling significantly. The success has led to a debate as to
the consequences of the ETF success. Some (including Jim Cramer) are
worried that this success is detrimental to the underlying shares because
it can be faster to trade the Cubes than the underlying stocks which in
turn leads to pricing discrepancies. Additionally, you can short sell
ETFs easier than you can the underlying stocks. On the other side is
Georgetown FinanceProfessor Jim Angel who holds that the volatility in the
markets is being expressed through the ETFs and the ETFs are not causing
the volatility.
back to top *** For the full story, click here.
Tax-Managed Funds
Tax-managed funds are mutual funds that try to maximize their investors
after-tax returns and not their pre-tax returns. This tax-reduction is
done by trading infrequently so as to not incur capital gains.
back to top *** For the full story, click here.
Fed cuts rates again
Obviously it has been widely reported (and was widely expected) but the
story with the largest consequences is probably the Fed’s fifth rate cut
this year. The Fed cuts its target Fed funds rate 50 more basis points.
This predictably led banks to cut their lending rates which it is hoped
will spur on investments and hence the economy.
back to top *** For the full story, click here.
US 30-, 15-yr mortgage higher after Fed cuts rate
While the Fed did cut short-term rate targets, it is useful to remember
that all interest rate moves do not result in a shift of the yield curve
(the curve showing yields of different maturities). Cutting rates leads
to a faster growing economy, which is often associated with higher
interest rates. Thus, the rate cut (coupled with this week's CPI release)
lead long term rates slightly higher. For example the yield on the
average thirty-year fixed rate mortgage climbed to 7.14% (which is still
1.5% lower than last year).
back to top *** For the full story, click here.
Corporate Finance
Free Donuts!!! A day after reporting record earnings, Krispy Kreme gave
away free donuts to draw attention to its listing on the NYSE. In listing
on the NYSE, Krispy Kreme followed what for years had been the traditional
life-cycle for a stock: begin trading on the Nasdaq and then switch once
you can meet the more stringent NYSE listing requirements. Krispy
Kreme's CEO mentioned greater name recognition as a reason for the switch:
"All the premier brands are listed on the NYSE and we feel that that is
where Krispy Kreme should be." This is a PR as well as financial loss
for the Nasdaq who has been trying to convince corporations that trading
costs are as low on the Nasdaq as on the NYSE. (The stock was up 20% on
the two announcements.)
back to top *** For the full story, click here.
SEC Accuses Former Bagel Execs of Fraud
Bad bagels? Well at least some bad accounting practices at Manhattan
Bagel. The SEC is accusing two former bagel executives of inflating the
price of the company’s stock by releasing fraudulent financial statements.
The two execs, Chairman Allan Boren and President Eric Cano, sold shares
(making a reported $13 million) prior to restating earnings.
back to top *** For the full story, click here.
Money for Nothing
Slate, and in particular Rob Walker, were really in a groove this week.
In the first of two great articles (see the Wachovia-Suntrust-First Union
story below as well), Walker reports that George Shaheen, the former CEO
of Webvan, will receive a minimum of $375,000 a year for life from the
internet grocer. These payments come after Shaheen stepped aside from the
firm after a two-year stint as CEO. During his reign, the stock fell so
far it is now being delisted.
back to top *** For the full story, click here.
Shareholders and Management in a Battle of Banks
Trying to steal away Wachovia from suitor First Union, Suntrust made a
hostile bid for Wachovia. Interestingly, Suntrust had reportedly
approached Wachovia with a friendly deal late last year only to be turned
down. First Union and Wachovia then agreed to a friendly, low-premium
deal (read that as management approved) whereby existing management would
keep their jobs.
back to top *** For the full story, click here.
Small business access to capital
Financing of small business is different than the financing of large
business. For one thing the fixed cost of issuance and the larger
information asymmetries often make it difficult, if not economically
unwise, to raise money publicly. For this reason banks play a much larger
role in the financing of smaller firms than large firms. As the economy
has slowed many economists and businessperson alike have feared that banks
will cut back on credit in order to assure a sound balance sheet.
However, this cut back can act as a credit crunch effectively locking some
firms out of the market. The Fed’s Roger Ferguson stated in a speech this
week that while there is some evidence of banks tightening their lending
policies, he sees a comparable drop in loan demand and in total he does
not see a credit crunch. (The speech also gives some fascinating stories
on the amazing number of small businesses in the US and their importance
to the economy.)
back to top *** For the full story, click here.
Citigroup agrees to buy Mexico’s 2nd largest bank
Citigroup continued the trend towards banks expanding internationally as
it agreed to buy the Mexican Banamex for $12.5 billion. Banamex (also
known as Banacci) is Mexico’s second largest banking group. The move may
signal the end of the Mexican banking crises and even led the peso higher.
back to top *** For the full story, click here.
JC Penney says has enough cash despite cut to junk
JC Penney is junk. Oh wait, that should have said their bonds are junk.
Why? Now all of the top three bond rating agencies (Standard and Poor's,
Moody's, and Fitch) have downgraded the retailer to junk status. The
downgrades were due to poor sales at both the department store and their
Eckerd Drug subsidiary. JC Penney officials predictably reiterated that
the firm still has good access to the capital markets and they have enough
cash to operate.
back to top *** For the full story, click here.
The Palatable Stock Option Exchange Plan
Option repricing is a controversial topic. In the wake of the recent Bear
Market many employees and managers have seen the value of their stock
options evaporate. If the purpose of stock options is to align incentives
with shareholders, then these “way-out-of-the-money” options have largely
ceased to do their job. To realign incentives many firms are reissuing
stock options. This however is often unpopular with shareholders who see
it as a “win-win” situation for management (Management wins if stock
prices rise, and wins if stock prices fall). However, some of these
exchanges (known largely as 6&1 plans for the 6 months plus one day needed
for the issuance of the new options to comply with FASB standards), have
met shareholder approval. Two keys are a less than a 1:1 swap (so for
each share given up, the employee/manager receives fewer than one share
and a broad-based plan that does not just reprice executive stock options.
back to top *** For the full story, click here.
Moody's sees 10 pct junk bond default rate by 2002
It is well known that the spreads between high rated and low rated bonds
increases during slow economic times. Why? Consider this: currently the
default rate for junk bond issuers is 7.5% or (9.2% by dollar volume).
This is expected to climb slightly over the next year as Moody's forecasts
a 10% default rate on Junk issues by early 2002. Moreover, currently 35%
of the market is rated Caa (the lowest non-default rate given by Moody’s).
This is compared to 13% in 1999 when the economy was stronger.
back to top *** For the full story, click here.
"Irv the liqidator" Jacobs backs Conseco with ad
OK, so we know that analysts often feel intra-firm pressure to not issue
sell recommendations because the investment banking side fears that they
will lose business. Well you can also add to this by the pressure that
analysts may face from shareholder. Case in point is Irwin Jacobs who
went to the extreme of taking out an advertisement in the WSJ ridiculing a
Salomon Smith Barney Stock analyst for his views on Conseco (a stock that
Irwin owns a large stake in). Amazingly, the analyst has a neutral rating
on the firm. Imagine if it had been a Sell!
back to top *** For the full story, click here.
Salomon says H1 corp bond issuance to hit $355 bln
As the primary market for equity as slowed, Corporate bond offerings are
on record pace. From convertibles to straight debt, firms are turning to
the debt markets to offset slow equity sales and to take advantage of the
lower (at least nominally) rates.
back to top *** For the full story, click here.
Two more CSFB staffers confirmed as part of IPO probe
The investigation of CSFB continues as two more employees come under
investigation for charging extra high commissions in return for shares in
hot IPOs.
back to top *** For the full story, click here.
FTSE collapse remains a mystery
On Monday did a mistake cause the FTSE to fall by over 100 points? It is
possible. The BBC reports that an inadvertent sell order by Lehman
Brothers may have caused the market to drop by over 100 points.
Reportedly the seller erroneously moved the decimal a few places and
rather than selling 3 million pounds worth of stock sold 300 million
pounds of stock. The next AM it recovered. However I am somewhat
skeptical as the article mentions low volume at the close and open which
is patently false. At least in the US (and I would suspect elsewhere as
well) those are the times of greatest volume.
back to top *** For the full story, click here.
General Finance – Too broad to categorize
The US Producer Price Index (PPI) came in slightly lower than expectations
at .1%. The core rate was in line with expectations at .2% for the month.
The CPI (consumer price index) climbed a bit more (.4%) but most experts
suggest that since the jump was largely in energy prices, that these
announcements confirm that inflation is less a concern than the slowing
economy and somewhat strengthened the Fed’s hand if they want to lower
interest rates again. Additionally consumer confidence fell slightly for
the month which may be a harbinger of continued sluggishness.
back to top *** For the full story, click here.
ISC Launches E-Finance Resources Web Site
back to top *** For the full story, click here.
|
|
|
|
|
| Current
Markets |
|
|
|
|
|
|
|
|
|
|
