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ADP Reports Weak Job Growth

ADP has released its National Employment Report for April.   Non-farm private employment increased 32,000 during  the month on a seasonally adjusted basis.   ADP also reported an upward revision of 19,000 jobs for March.  The two consecutive net employment gains reported by ADP indicates that job loss may have bottomed and the slim increase in employment confirms a positive trend is underway.     The massive governmental intervention to recapitalize the banking sector and initiate stimulus programs have stabilized the economy.  The abatement of extreme risk aversion in the credit markets, favorable interest rates, improving consumer sentiment, low inflation and the dramatic rebound in securities markets are all positive growth drivers for the economy.

Highlights of the ADP  report include:

Estimates non-farm private employment in the service-providing sector increased by 50,000.

Employment in the goods-producing sector declined 18,000.

Employment in the manufacturing sector rose for the third consecutive month by 29,000 jobs.

Employment in the construction sector dropped by 49,000.

Large businesses with 500 or more workers  added 14,000 jobs

Medium-size businesses, defined as those with between 50 and 499 workers increased by 17,000.

Employment among small-size businesses with fewer than 50 workers, increased by 1,000 in April.

Employment in the financial services sector dropped 14,000, resulting in over three years of consecutive monthly
declines.

Overview of Numbers

The net gain of 32,000 jobs for the massive US economy is an admittedly weak gain for an economy that has shed 11 million jobs but it is an indication that the economy is stabilizing.

The correlation of the loss of jobs in construction and financial services is an indication of a US economy that continues to transition its dependency on residential and commercial real estate development.  The difficult conditions in the commercial and residential real estate market will continue as excess inventories brought on by high foreclosure rates continue to be worked off.   As the ADP report highlights construction employment has declined for thirty-nine consecutive months, bringing the total decline in construction jobs since the peak in January 2007 to 2,159,000.  Its clear that the US economy has lost two critical recovery drivers.

Soft conditions in the construction sector weighs heavily on small business job creation.  Most contractors are small businesses and with the anemic rate of new housing construction small business job creation will continue to be soft.

Specialty retail is another large component of the small business market.  Improving consumer sentiment will help this sector.  However small retailers have suffered massive business closures during the recession.  A robust recovery in this sector will not commence until commercial lending for start ups and business expansion becomes more readily available from the banks.

The report also indicates that the goods producing sector of small businesses shed 24,000 jobs during the month  to continue the trend in the deterioration of small manufactures.  This decline was offset by a 25,000 gain in service based jobs.  The  growth of the service sector of the US economy continues at the expense of the manufacturing sector.  The growth of small business service sector indicates that businesses continue to managed fixed costs of their business by outsourcing various services.

This ADP report is a positive indication that we may be at a bottom of the economic cycle.  Bottoms don’t mean that things are improving they indicate that conditions are not worsening.  The economic recovery is still confronted with headwinds.  The oil spill in the Gulf of Mexico, the economic and growing political instability of EU countries and the cooling off of the Chinese economy may present some challenges to a sustained and robust recovery in the United States.

Solutions from Sum2

Sum2 advocates the establishment of an SME Bank to sustain long term economic growth.  Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Isley Brothers, Work To Do

Risk: unemployment, recession, recovery, SME

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May 5, 2010 Posted by | ADP, banking, credit, manufacturing, real estate, recession, small business, SME, Uncategorized, unemployment | , , , , , , , , , , , , , , , | Leave a comment

The Profitability of Patriotism: SME Lending

What a  difference a year makes.  A year ago the banks came crawling to Washington begging for a massive capital infusion to avoid an Armageddon of the global financial system.  They sent out an urgent SOS for a $750 billion life preserver of tax payers money to keep the banking system liquid.  Our country’s chief bursar Hank Paulson, designed a craft that would help the banks remain afloat.  Into the market maelstrom Mr. Paulson launched the USS TARP as the vehicle to save our  distressed ship of state.  The TARP would prove itself to be our arc of national economic salvation.  The success of the TARP has allowed the banks to generate profits in one of the most prolific turnarounds since Rocky Balboa’s heartbreaking split decision loss to Apollo Creed.  Some of the banks have repaid the TARP loans to the Fed.  Now as Christmas approaches and this incredible year closes bankers have visions of sugar plum fairies dancing in their heads as they dream about how they will spend this years bonus payments based on record breaking profitability.   President Obama wants the banks to show some love and return the favor by sharing more of their recapitalized balance sheets by lending money to small and mid-size enterprises (SME).

Yesterday President Obama held a banking summit in Washington DC.  Mr. Obama wanted to use the occasion to shame the “fat cat bankers” to expand their lending activities to SMEs.  A few of the bigger cats were no shows.  They got fogged in at Kennedy Airport.  They called in to attend the summit by phone.    Clearly shame was not the correct motivational devise to encourage the bankers to begin lending to  SMEs.    Perhaps the President should have appealed to the bankers sense of patriotism; because now is the time that all good bankers must come to the aid of their country.  Failing that, perhaps Mr. Obama should make a business case that SME lending  is good for profits.   A vibrant SME sector is a powerful driver for wealth creation and economic recovery.    A beneficial and perhaps unintended consequence of this endeavor is  the economic security and political stability of the nation.  These  are the  worthy concerns of all true patriots and form a common ground where bankers and government can engage the issues that undermine our national security.

The President had a full agenda to cover with the bank executives.  Executive compensation, residential mortgage defaults, TARP repayment plans, bank capitalization and small business lending were some of the key topics.  Mr. Obama was intent on chastising the reprobate bankers about their penny pinching credit policies toward small businesses.  Mr. Obama conveyed to bankers that the country was still confronted with major economic problems.  Now that the banks capital  base has been stabilized with Treasury supplied funding they must get some skin into the game and belly up to the bar by making more loans to SMEs.

According to the FDIC, lending by U.S. banks fell by 2.8 percent in the third quarter.  This is the largest drop since 1984 and the fifth consecutive quarter in which banks have reduced lending.   The decline in lending is a serious  barrier to economic recovery.  Banks reduced the amount of money extended to their customers by $210.4 billion between July and September, cutting back in almost every category, from mortgage lending to funding for corporations.  The TARP was intended to spur new lending and the FDIC observed that the largest recipients of aid  were responsible for a disproportionate share of the decline in lending. FDIC Chairman Sheila C. Bair stated,   “We need to see banks making more loans to their business customers.”

The withdrawal of $210 billion in credit from the market is a major impediment for economic growth.  The trend to delever credit exposures is a consequence of the credit bubble and is a sign of prudent management of credit risk.  But the reduction of lending activity impedes economic activity and poses barriers to SME capital formation.  If the third quarter reduction in credit withdrawal were annualized the amount of capital removed from the credit markets is about 7% of GDP.  This coupled with the declining business revenues due to recession creates a huge headwind for SMEs.  It is believed that 14% of SMEs are in distress and without expanded access to credit, defaults and  bankruptcies will continue to rise.  Massive business failures by SMEs shrinks market opportunities for banks and threatens their financial health  and long term sustainability.

The number one reason why financial institutions turn down a SME for business loans is due to risk assessment. A bank will look at a number of factors to determine how likely a business will or will not be able to return the money it has borrowed.

SME business managers must conduct a thorough risk assessment if it wishes to attract loan capital from banks.  Uncovering the risks and opportunities associated with products and markets, business functions, macroeconomic risks and understanding the critical success factors and measurements that create competitive advantage are cornerstones of effective risk management.  Bankers need assurances that managers understand the market dynamics and risk factors present in their business and how they will be managed to repay credit providers. Bankers need confidence that managers have identified the key initiatives that maintain profitability.  Bankers will gladly extend credit to SMEs that can validate that credit capital is being deployed effectively by astute managers.  Bankers will approve loans when they are confident that SME managers are making prudent capital allocation decisions that are based on a diligent risk/reward assessment.

Sum2 offers products that combine qualitative risk assessment applications with Z-Score quantitative metrics to assess the risk profile and financial health of SMEs.   The Profit|Optimizer calibrates qualitative and quantitative risk scoring  tools; placing a powerful business management tool into the hands of SME  managers.   SME managers  can  demonstrate  to bankers that their requests for credit capital is based on a thorough risk assessment and opportunity discovery exercise and will be effective stewards of loan capital.

On a macro level SME managers must vastly improve their risk management and corporate governance cultures to attract the credit capital of banks.  Through programs like the Profit|Optimizer,  SME’s can position themselves to participate in credit markets with the full faith of friendly bankers.  SME lending is a critical pillar to a sustained economic recovery and stability of our banking system.  Now is the time for all bankers  to come to the aid of their country by opening up credit channels to SMEs to restore  economic growth and the wealth of our  nation.

You Tube Music Video: Bruce Springsteen, Seeger Sessions, Pay Me My Money Down

Risk: banking, credit, SME

December 15, 2009 Posted by | banking, credit crisis, economics, FDIC, government, SME, TARP | , , , , , , , , , , , , , , , , , , , , , | Leave a comment

A Growing Contagion: One in Seven Companies Are a Credit Risk

contagion1-450The H1N1 Swine flu threat may be the big topic on CNN but a growing contagion of financial distress is widely infecting small and mid-sized enterprises (SME) with potentially fatal consequences.

CFO magazine reports that 14% of companies are struggling to pay their bills or are at risk for bankruptcy. These findings are the result of a study CFO conducted on 1500 Midcap companies. The 2009 Credit Risk Benchmarking Report indicated that 550 companies of the 1500 made the credit watch list and over 200 of the names were in or are entering a distressed financial condition.

The report measures each company on three factors: cash as a percent of revenue, days payable outstanding (DPO), and DPO relative to the DPO of that company’s industry. The last of these measures is intended to expose which companies are under performing regardless of the economic condition of their industry as a whole. A company scoring low in all three areas is rated a potential credit risk.

The strain of a two-year recession and limited credit access is taking its toll on small and mid-sized businesses. This development is not surprising. The recession has hurt sales growth across all market segments. Banks, still reeling from the credit crisis are still concerned about troubled assets on their balance sheets. Bankers can’t afford more write downs on non-performing loans. Banks remain highly risk adverse to credit default exposures and have drastically reduced credit risk to SMEs by shutting down new lending activity.

Reduced revenue, protracted softness in the business cycle and closed credit channels are creating perfect storm conditions for SME’s. Bank’s reluctance to lend and the high cost of capital from other alternative credit channels coupled with weak cash flows from declining sales are creating liquidity problems for many SMEs. As a defensive maneuver, SMEs are extending payment cycles to vendors to preserve cash. This same cash management practice is also being employed by their clients resulting in an agonizing daisy chain of liquidity pain. SME’s that have concentrated exposures to large accounts are at the mercy of the financial soundness of few or in some instances  a single source of revenue.

The growing contagion of financial distress is also a major threat to supply chains. Buyers might prize their ability to drive hard bargains with their suppliers but the concessions won may be the straw that breaks the camels back driving a supplier into insolvency.

It is critical that managers understand all risks associated with clients and suppliers. It is critical that managers assess risks associated with client relationships and key suppliers. In this market, enhanced due diligence is clearly called for. The financial soundness of suppliers and clients must be determined and scored so as to minimize default exposures to your business.

CreditAides is a company that delivers  SaaS based financial health assessments on SMEs.  CreditAides reports that their clients are becoming more vigilant and thorough  in their due diligence of customers and suppliers.  They have noted a particular emphasis on the growing practice of reviewing the financial health of suppliers.  Supply chain risk is a heightened risk factor for SME’s due to their over dependence on single source.  Conducting a financial health assessment on key suppliers and other enhanced due diligence practices mitigates a risk factor that could have potentially devastating consequences.  SME manager’s need to button down their due diligence practices  to prevent the sickness from infecting their business.

CreditAides SaaS can be accessed here: www.CreditAides.com

You Tube Music Video: Bing Crosby and Rosemary Clooney,  Button Up Your Over Coat

Risk: contagion, credit risk, counter-party, supply chain, client, recession, banking

October 9, 2009 Posted by | banking, business, commerce, credit, credit crisis, economics, recession, risk management, SME, supply chain, sustainability | , , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Rutgers Job Study: Full Employment By 2017!

help wantedRutgers University has released a sobering study on expected recovery rates in employment levels for the United States economy.   The study,  America’s New Post-Recession Employment Arithmetic indicates that the employment deficit has grown so large that it may take until 2017 for the nation’s labor market to return to its pre-recession level.

The study, released by the Edward J. Bloustein School of Planning and Public Policy is a cause for concern.  The study reports that the US economy has shed over 7 million jobs since the recession officially began in December 2007.  This has reduced the total number of jobs in the United States by 5.8%, the largest drop during any downturn since World War II.  The authors of the study, James W. Hughes and Joseph J. Seneca, project that the employment deficit will total 9.4 million private sector jobs by the end of the year.

The study estimates that if the economy adds more than 2 million jobs annually starting next year, it would take until August 2017 – more than seven and a half years – to both recover the jobs lost since December 2007 and create new positions for the roughly 1.3 million people who join the labor force each year.

Hughes and Seneca believe that a recovery in 2017 may be an optimistic assumption.  An economic expansion that lasts for seven years is about 50 percent longer than the average for postwar recoveries.   Hughes and Seneca refer to the last ten years as “The Lost Employment Decade,” because the U.S. is on track to finish this year with 1.3 million fewer total jobs than it had in December 1999. “This is the first time since the Great Depression of the 1930s that America will have an absolute loss of jobs over the course of a decade” the report states.

The past decade has witnessed a startling reversal in economic fortunes for the US economy.   The U.S. finished the 1990s with 19  million more private sector jobs than it had at the start of the decade.   Approximately 16 million jobs were created during the 1980s.  Before the recession,  annual rate of job growth was about 1 million jobs per year, about half of the growth rates of the previous two decades.

Hughes and Seneca believe that this will force states into fierce competition to realize job growth.  States must respond by creating desirable environment for business based on costs, affordability, business climates, support infrastructure, labor force quality and tax policies.

We believe that joblessness and unemployment continue as significant threats to economic growth.   The conception of  the unemployment rate as a lagging indicator is emerging as a lead driver inhibiting economic recovery.  High unemployment continues to inhibit consumer spending and works against a rebound in the housing market and related construction industries.  Retailers are already bemoaning the bleak forecast for this years holiday shopping season.  State and local governments reeling from dwindling tax receipts are beginning to crack under the strain to fund basic community services, public schools and social assistance programs.

The structural dysfunction of the  American economy is a critical issue that must be addressed.  A concerted program aimed at the development and incubation of SME manufactures will encourage the entrepreneurial energy and kick start badly needed economic drivers  to ignite a recovery.  Sum2 advocates the adoption of The Hamilton Plan and the creation of an SME Development Bank to reestablish sustainable growth and national prosperity.

You Tube Music Video: Bruce Springsteen Seeger Sessions, Pay Me My Money Down and Erie Canal

(RU and Bruce, Perfect Together)

Risk: unemployment, job creation, SME, political stability, recession,

October 8, 2009 Posted by | associations, business, commerce, economics, government, Hamilton Plan, labor, manufacturing, poverty, recession, risk management, SME, unemployment | , , , , , , , , , , , , , , , , , , , | 2 Comments

ADP Reports 250,000 More Jobs Lost in September

job-loss-absoluteADP has released its National Employment Report for September   Nonfarm private employment decreased 254,000 during  the month on a seasonally adjusted basis.   The ADP report indicates that job loss continues to decelerate.  Though slowing, the unemployment rate continues to creep higher.  The impact of the loss of  a quarter of a million jobs is an indication that economic recovery remains sluggish and the US has a long way to go before the benefits of wide spread sustainable growth are realized.

The evaporation of jobs will continue to hinder a broad recovery in the housing market.  Yesterday I heard a speaker claim that approximately 25% of homes in Florida are in foreclosure or are behind in their mortgage payments.  It is an incredible statistic that speaks volumes about the acute systemic problems of the service based, boom/bust Florida economy.

Highlights of the ADP  report include:

Employment from July to August was revised from a decline of 298,000 to a decline of 277,000

September’s employment decline was the smallest since July of 2008

Employment losses have diminished significantly over the last two quarters

Nonfarm private employment in the service-providing sector fell by 103,000

Employment in the goods-producing sector declined 151,000

Employment in the manufacturing sector dropped 74,000

Employment with large businesses with 500 or more workers declined  by 61,000

Employment with medium-size businesses with between 50 and 499 workers declined 93,000

Employment among small-size businesses with fewer than 50 workers, declined 100,000

Employment losses among small-size businesses have diminished in each of the last six months

Construction employment dropped 73,000. This was its thirty-second consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,632,000.

Employment in the financial services sector dropped 19,000, the twenty-second consecutive monthly decline.

Sum2 advocates the establishment of an SME Bank adoption of The Hamilton Plan to address the recession.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: The Silhouettes, Get A Job

Risk: unemployment, recession, recovery, political

September 30, 2009 Posted by | banking, commerce, economics, Hamilton Plan, manufacturing, recession, SME, Sum2, sustainability, unemployment | , , , , , , , , | Leave a comment

Banking is Getting Expensive

screamThe severity of the banking crisis is evident in the 95 banks the FDIC has closed during 2009.  The inordinate amount of bank failures has placed a significant strain on the FDIC insurance fund.  The FDIC insurance fund protects bank customers from losing their deposits when the FDIC closes an insolvent bank.

The depletion of the FDIC Insurance fund is accelerating at an alarming rate.  At the close of the first quarter, the FDIC bank rescue fund had a balance of $13 billion.    Since that time three major bank failures, BankUnited Financial Corp, Colonial BancGroup and Guaranty Financial Group depleted the fund by almost $11 billion.   In addition to these three large failures over 50 banks have been closed during the past six months.   Total assets in the fund are at its lowest level since the close of the S&L Crisis in 1992.   Bank analysts research suggests that FDIC may require $100 billion from the insurance fund to cover the expense of an additional 150 to 200 bank failures they estimate will occur through 2013.  This will require massive capital infusions into the FDIC insurance fund.  The FDIC’s goal of maintaining confidence in functioning credit markets and a sound banking system may yet face its sternest test.

FDIC Chairwoman  Sheila Bair is considering a number of options to recapitalize the fund.  The US Treasury has a $100 billion line of credit available to the fund.    Ms. Bair is also considering a special assessment on bank capital and may ask banks to prepay FDIC premiums through 2012.  The prepay option would raise about $45 billion.  The FDIC is also exploring capital infusions from foreign banking institutions, Sovereign Wealth Funds and traditional private equity channels.

Requiring banks to prepay its FDIC insurance premiums will drain economic capital from the industry.  The removal of $45 billion dollars may not seem like a large amount but it is a considerable amount of capital that banks will need to withdraw from the credit markets with the prepay option.  Think of the impact a targeted lending program of $45 billion to SME’s could achieve to incubate and restore economic growth.  Sum2 advocates the establishment of an SME Development Bank to encourage capital formation for SMEs to achieve economic growth.

Adding stress to the industry, banks remain obligated to repay TARP funds they received when the program was enacted last year.  To date only a fraction of TARP funds have been repaid.  Banks also remain under enormous pressure to curtail overdraft, late payment fees and reduce usurious credit card interest rates.  All these factors will place added pressures on banks financial performance.  Though historic low interest rates and cost of capital will help to buttress bank profitability, high write offs for bad debt, lower fee income and decreased loan origination will test the patience of bank shareholders.   Management will surely respond with a new pallet of transaction and penalty fees to maintain a positive P&L  statement.  Its like a double taxation for citizens.  Consumers saddled with additional tax liabilities to maintain a solvent banking system will also incur higher fees by their banks so they can repay the loans extended by the US Treasury to assure a well functioning financial system for the republic’s citizenry.

Risk: bank failures, regulatory, profitability, political, recession, economic recovery, SME

September 29, 2009 Posted by | banking, commerce, compliance, credit crisis, economics, FDIC, government, regulatory, risk management, SME, sovereign wealth funds, TARP, Treasury | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 2 Comments

Get Ready for New Treasury Small Business Lending Program

economic_recoveryReuters reports that the U.S. Treasury will soon launch a new program aimed at aiding small business lending, the head of the Treasury’s $700 billion bailout fund said on Thursday.

Herbert Allison, the Treasury’s assistant secretary for financial stability, declined to provide details or specific timing on the program in testimony before the U.S. Senate Banking Committee.

The US Treasury has focused for the past year on stabilizing the banks with massive capital infusions into the sector with the TARP program.  The TARP seems to have succeeded in its goal to shore up the economic capital base of bank’s but lending activity to small and mid-size enterprises (SME)  has dramatically slowed.  Capital constraints and heightened risk aversion by commercial banks has curtailed access to moderately priced credit products for many SMEs.  Credit risk aversion and the recession has hurt the sector and has contributed to growing bankruptcy rates by capital starved SMEs.

SMEs employ more workers then any other business sector demographic.  One of the reasons the recession has been so severe is due to the massive layoffs and business closures within the by SME segment.   There are approximately 6 million SMEs in the United States.  If each SME hired one person that would put a serious dent in the unemployment rate.  Some statistics on the SME demographic includes:

• Represent 99.7 percent of all employer firms.
• Employ half of all private sector employees.
• Pay more than 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than 50 percent of non-farm private gross domestic product (GDP).
• Supplied more than 23 percent of the total value of federal prime contracts in FY 2005.
• Produce 13 to 14 times more patents per employee than large patenting firms.
• Are employers of 41 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 53 percent home-based and 3 percent franchises.
• Made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.

(Source: Cornell School of Industrial and Labor Relations, Basesky and Sweeney)

The US Treasury program will target the SME segment and direct capital to help lead the economic recovery.  SMEs are the leading source of job creation, product innovation and wealth creation.  A vibrant and financially healthy  SME sector is key to any sustainable economic recovery.  This program will also help to bolster the ailing community banking sector that has seen over 95 closures by the FDIC this year.

It is critical that SMEs prepare to participate in this program.    Sum2 offers a complete product suite to help SMEs capitalize on the many opportunities economic recovery will present.  Sum2’s recently announced webinar series “Recovery Tools for a New Economy” offers SME critical management tools to profit from the emerging business cycle.

As the lending program to SME rolls out, bankers will initiate engagement process and business reviews.  They will be  looking to determine if SME managers have identified risks confronting their business.  It is incumbent on small business managers to understand how changing market dynamics and operational risk factors are impacting their business and demonstrate how they will mitigate these risk factors.

Sum2 provides a series of risk assessment products that assist companies to chart paths to profitability and growth.  The Profit|Optimizer, is a unique risk management and opportunity discovery tool that helps SMEs effectively manage the challenges posed by the recession and recovery business cycles.

Risk:  SME, recession, recovery, stimulus, commercial banking

September 25, 2009 Posted by | banking, credit, FDIC, recession, risk management, TARP, Uncategorized, unemployment | , , , , , , , , , , , , , , , , , , , , , | 3 Comments

As Bank Failures Rise, FDIC Funds Sink

fdic-cartoon-2-2The FDIC has reported the failure of 77 banks so far this year.  It is the highest rate of bank failures since the height of the Savings and Loan crisis in 1992.  The cause of the failure for many of these banks are mounting loan loses on commercial loans made to commercial real estate developers and small and mid-sized businesses (SME).   This is dramatically different from the banking crisis that unfolded in the later part of 2008.  Bank solvency was threatened due to high default rates in sub-prime mortgage loans and the erosion of  value in residential mortgage backed securities (RMBS) held by larger banking intuitions. This led to the TARP program that was created to purchase distressed assets and inject much needed capital into struggling banks.

Most of the bank failures are the result of the macroeconomic factors spawned by the recession.  High unemployment and tightening credit availability has stressed many consumer oriented businesses.  It has led to alarming bankruptcy rates of SMEs.  This has hurt community banks who have a significant portion of their commercial lending portfolios exposed to commercial real estate dependent on a vibrant SME segment.  Bank failures remove liquidity from the credit markets.  As more banks fail funding sources and loan capital are withdrawn from the system.  This is yet another dangerous headwind c0nfronting SMEs  as they struggle with a very difficult business cycle.

The FDIC is growing increasingly alarmed about the solvency of its insurance fund and its ability to cover depositors of failed banks.  This years largest bank failure, Colonial Bank Group is expected to cost the FDIC insurance fund$2.8 billion.  Its a large amount for the  stressed fund to cover in  light this years high number of bank failures and an expectation that failures will continue to rise.

According to Forbes online, the FDIC has indicated concern that the Guaranty Financial Group Inc., a Texas-based company with $15 billion in assets that racked up losses on loans to home builders and borrowers in California, and Corus Bankshares Inc., a $7 billion Chicago lender to condominium, office and hotel projects are also at risk of failing.  Each failure will place a added  strain on the FDIC insurance fund. The costliest failure was the July 2008 seizure of big California lender IndyMac Bank, on which the fund is estimated to have lost $10.7 billion.

The FDIC expects bank failures will cost the fund around $70 billion through 2013. The fund stood at $13 billion – its lowest level since 1993 – at the end of March. It has slipped to 0.27 percent of total insured deposits, below the minimum mandated by Congress of 1.15 percent.

The FDIC has a huge challenge on its hands.  It needs to maintain the orderly working of the banking system to alleviate the waning confidence of consumers and shareholders.  Recently it was announced that restrictions on private equity firms purchasing banking companies will be relaxed to assure that the industry remains sufficiently capitalized.  Regulators will need to increase oversight of community banks risk  management controls.  The added transparency may be resented by bank management but it may help to stem the tide of accelerating bank failures as the difficult conditions in the commercial real estate market persists.  In any case bankers should expect to see an increase in FDIC insurgence premiums to recapitalize the depleted fund.  Unfortunately bank customers will be burdened with rising fees banks charge for services as they seek ways to cover the rising expense of default insurance.

Bankers must become more vigilant in their assessments to determine the credit worthiness of SMEs. Sum2’s Profit|Optimizer is helping bankers assess small business credit worthiness; leading to lower loan defaults, higher profitability and more harmonious client relationships.  The Profit|Optimizer is also available for purchase on Amazon.com.

You Tube Music Video: Ray Charles, Busted

Risk: FDIC, banks, credit,

August 22, 2009 Posted by | banking, credit, credit crisis, economics, FDIC, private equity, real estate, recession, regulatory, risk management, SME, Sum2, TARP, Uncategorized | , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Hamilton Plan: Reindustrialization of America

Photograph By Anthony Augustine



Sum2 Announces  

The Hamilton Plan:

A Ten Point Program to Develop

Small and Mid-Size Enterprise

(SME) Manufactures

Great Falls Festival
Paterson NJ,

Labor Day 2008


Sum2 is proud to be participating again in this year’s historic Great Falls Festival and is pleased to announce The Hamilton Plan, a ten point program to develop small and mid-size enterprise (SME) manufactures. The Paterson Great Falls Festival is the perfect opportunity for Sum2 to invite business owners and executives, industry associations, chambers of commerce, banks, capital market participants, labor unions, academia, non-profit organizations and governmental institutions to join forces in a concerted effort to support the reestablishment of the manufacturing infrastructure of the United States.

“Many of the economic, political and cultural challenges confronting the United States can be traced back to the dismantling of our industrial and manufacturing base” stated James McCallum President of Sum2. “Since the 1980’s America’s economic infrastructure has dramatically changed. The evolution of our economy to service oriented businesses has seriously eroded the manufacturing capabilities and industrial capacity of our country. This has produced a decline of higher wage paying jobs, the disincentive to develop innovative manufacturing methods and practices, deteriorating support infrastructure and the impairment of ancillary support businesses.

It’s in the vital national interest for institutions representing business, labor, communities and government cooperate to foster optimal conditions to incubate and develop SME manufactures. The SME segment is the largest most vibrant sector of our economy and by combining the entrepreneurial drive and creative energy of SME’s with our pressing need for innovative manufactures; America can reestablish its ascendancy as a preeminent power in the global economy. Sum2’s Hamilton Plan is designed to encourage the formation of support clusters to develop SME manufacturing.


Sum2’s Hamilton Plan

1. WBC Standards for Sustainable Business Model
2. Establish Incubators for Targeted Growth Industries
3. Adopt Sound Governance, Risk, Compliance Practices (GRC)
4. Form SME Development Bank / Private Equity Capital Formation Initiatives
5. Partnership Lyceums for Government / Business / Academic Institutions
6. Labor Unions as Preferred Stakeholder / Association Syndication Unions
7. Establish Cooperatives for Technology / Licensing / Commodity / Energy
8. Superfund for Progressive Tax Code / Universal Health & Benefits /
Infrastructure / Brownfield Remediation and Reclamation
9. Expand Public Education Funding & SME COOP Program
10. Support Millennium Development Goals


Historical Significance of Paterson’s Great Falls

Paterson’s Great Falls Festival is an ideal venue to announce the Hamilton Plan. The Friends of the Great Falls website writes that in 1791, Alexander Hamilton and a group of investors created the S.U.M., the Society for Establishing Useful Manufactures, to harness the tremendous power of the Passaic Great Falls. It was the boldest private enterprise ever conceived in the early days of the United States. Hamilton envisioned an industrialized America and the creation of this raceway system was his ambitious example of how corporations could be organized to develop manufacturing on a large scale. With this enterprise, along with the law, finance and incentives he put in place as the nation’s first Secretary of the Treasurer, Hamilton forged the basis of American capitalism. The planned industrialization of this historic place is the realization of the Hamiltonian vision of an industrialized America. This is truly a founding father’s site.

Sum2 Sound Practice Thought Leader

Sum2’s announcement of the Hamilton Plan is in response to the compounding economic and political crisis that is confronting the United States. The credit and energy crisis, inflation pressures, trade deficits, geo-political instabilities, global warming and ecological degradation are the result of long term systemic problems that government and industry has failed to address effectively. Sum2 advocates the adoption of the program to squarely address these pressing issues with the full understanding that it will require the concerted cooperation of all stakeholders to assure the continued development, security and prosperity of America.

Sum2 offers a series of products and services to help SME’s effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

At last years Great Falls Festival, Sum2 announced its new product series the SMB|360°. Since that announcement the series has expended to include, the Profit|Optimizer, and a soon to be announced premium product that that will expand the breath and depth of the SMB|360° product series.

The Profit|Optimizer is a qualitative risk assessment and opportunity discover tool. It assists SME’s to identify and score business vulnerabilities and opportunities. The Profit|Optimizer conducts over 200 assessments encompassing products and markets, business functions and critical success factors. The Profit|Optimizer aggregates assessment scores and presents initiatives on a series of dashboards that allows business managers to decide what action items mitigates the greatest risk and produces the greatest return. Managers can make informed capital allocation decisions to build profitability and maintain business growth.

The Profit|Optimizer demonstrates to shareholders, bankers and other stakeholders that company management are effective risk managers that are committed to practicing corporate governance excellence.

Sum2 also offers the award winning PACO™ (Patriot Act Compliance Officer). PACO™ helps financial services companies comply with the anti-money laundering provision of the Patriot Act.

About Sum2, LLC

Sum2 was founded in 2002 to promote the commercial application of sound practice programs. Sum2’s sound practice program addresses risk management, corporate governance, shareholder communications and regulatory compliance. Sum2’s objective is to assist businesses and industries to implemen
t corporate sound practices that add exponential value for stakeholders, employees, customers and to be exemplary citizens within the communities in which they operate and serve.


Sum2 manufactures, aggregates, packages and distributes innovative digital data content products to selected channels and markets.

Music: Billy Joels Allentown

Risk: unemployment, urban decay, global competitiveness, national security, protection of middle class

August 30, 2008 Posted by | Hamilton Plan, manufacturing, recession, SME, Sum2 | , , , , , | 2 Comments