New York Fed’s new small business poll shows evidence of credit demand; cash flows for small businesses key to credit approval

The Federal Reserve Bank of New York today released Access to Credit: Poll Evidence from Small Businesses, based on a poll conducted this summer of 426 regional small businesses.

Here are the headline findings:

· Existing credit demand – 59% of respondents applied for credit in the first half of 2010. However, only half of applicants were approved for credit.

· Importance of cash flows to credit approval— retained business earnings and sales/revenue growth were the keys to credit approval—and likely reflect the difficulty of asset-based lending.

· Weakened applicant quality—over two-thirds of respondents experienced declining sales/revenues between mid-2008 and mid-2010, which may help to explain why credit access is limited.

· Unmet credit needs—three quarters of applicants received only ‘some’ or ‘none’ of the credit they wanted.

To read the the full report, podcast, and details about the data click here. We would like to thank the many Business Council small business members that took the time to help the Federal Reserve Bank of New York and The Business Council with this report.

Despite more stable credit outlook, Wells Fargo/Gallup Small Business falls to new low
Though their concerns about credit availability have stabilized, fewer U.S. small business owners expect revenues, cash flow, capital spending and hiring to increase over the next 12 months, according to the latest Wells Fargo/Gallup Small Business Index, conducted in July. The lower expectations for business prospects contributed to a 17-point decline from April in the survey’s index of business owner confidence, finishing at (-28), the lowest score since the survey’s inception.

Credit conditions improved modestly for businesses in July with 32 percent of respondents reporting that credit was “somewhat” or “very difficult” to obtain over the past 12 months, down from 36 percent in April. Yet business owners expect credit to remain tight over the next 12 months as 42 percent expect credit to remain “somewhat” or “very difficult” to obtain, the same percentage reported in April and January 2010.

Wachovia, a Wells Fargo Company, operates 474 community banking stores and 750 ATMs in New Jersey, New York, and Connecticut, as well as employs 13,000 team members. The Wachovia brand will switch to Wells Fargo in the first quarter of 2011.

Click release_q310_sbi-economic_final to view the full survey.

Meena Hartenstein of the Daily News writes from Washington -”A broad financial reform bill, designed to remedy the mistakes that led to the economic meltdown of 2008, officially passed the Senate Thursday by a vote of 60-39.

A 60-38 vote earlier in the day on Thursday allowed the bill to clear the Senate’s last procedural hurdle, though support was split sharply along partisan lines.

Only three Republicans — Susan Collins and Olympia Snowe of Maine and Scott Brown of Massachusetts — voted with Democrats in the initial vote to end the debate, reported The Associated Press. Democrat Russ Feingold of Wisconsin, who has blasted the bill for not being strong enough, voted against it along with most Republicans.

The bill is now making its way to President Barack Obama, who has publicly demanded sweeping financial reform.”

To read more click here.

The New York Post reports - “One year in the making, a sweeping overhaul of Wall Street rules forged in the aftermath of a financial crisis cleared congressional negotiations early Friday and headed to the House and Senate for final votes.

Lawmakers hope to have a bill on President Barack Obama’s desk by July 4.

Success came at 5:39 a.m., hours after Obama administration officials helped broker a deal that cracked the last impediment to the bill — a proposal to force banks to spin off their lucrative derivatives trading business.

The legislation, the most ambitious rewrite of financial regulations since the Great Depression, touches on an exhaustive range of financial transactions, from a debit card swipe at a supermarket to the most complex securities deals cut in downtown Manhattan.

To read more click here.

The Business Council of New York State and the Federal Reserve Bank of New York invite you to complete an important poll of entrepreneurs and small business owners (those who own and operate businesses with 0-500 employees). The Federal Reserve Bank is working with civic and business organizations throughout New York State including The Business Council, to gather timely and accurate information about business needs. Your answers to questions about financing sources, recent credit experiences, and expectations about future financing options will help to shape the Federal Reserve Bank of New York’s efforts to strengthen New York’s small business community. This summer and fall, we will release the results of the survey and issue a report on critical issues facing entrepreneurs and small businesses.

To take the short survey click here.

For mor information on this important project contact
Claire Kramer, Ph.D.  at  Claire.Kramer@ny.frb.org

“Many New York legislators and advocates seem intent on punishing the financial services industry with higher taxes and costly new regulations. But to do so puts thousands of jobs and New York’s most important industry at risk,” said Kenneth Adams, president and CEO of The Business Council of New York State, Inc.

A new report, “Derailing New York’s Economic Engine: How Albany Punishes New York’s Largest Industry”, by the Public Policy Institute, the research affiliate of The Business Council, shows how important and also how mobile the financial services industry is.

The report finds that the financial services sector is the largest contributor to New York’s gross state product. And with a production multiplier applied, the total contribution to the state’s economy is $318 billion.

Currently, there are more than 90 bills and not yet introduced proposals in the state legislature that would raise taxes or impose other costs and burdens on this industry. This is on top of $3.8 billion in new taxes and fees that have been levied on the sector since 2007. The industry and its employees pay 20.3 percent of the state’s tax revenues.

More than 500,000 people work directly for the sector in New York and the report estimates more than 1.6 million New Yorkers are dependent on the industry to support their jobs.

While many of these workers are concentrated in New York City, the four other counties with the highest concentration of financial services workers are Nassau, Erie, Suffolk and Westchester — demonstrating the industry’s importance across the state.

The report also documents that jobs in the industry are more mobile than ever and can be moved to other financial centers if New York makes itself less competitive. New York is in a global competition to remain “The Financial Capital of the World”.

“Albany punishes banks and insurance companies at our collective peril,” said Adams. “Legislators should pause to consider how many jobs throughout the state are at stake before pursuing their many new tax and regulatory schemes.”
Read the full report here.

Financial Times reporters Tom Braithwaite, Anna Fifield and Nicole Bullock write: “Two key Democratic senators offered a narrow path for compromise over the weekend after banks pleaded with regulators and clients to help overturn provisions of a financial regulation bill they say will rock markets.

Chris Dodd, Senate banking committee chairman, and Blanche Lincoln, chairman of the agriculture committee, told the Financial Times there was room to negotiate on a proposal that would force banks to spin off their swaps desks.

Moderate Democrats are trying to cut a deal in private that would change the provision on swaps desks, which the industry and regulators warn is unworkable. Other congressional Democrats are pushing for a $90bn bank levy and increased taxes on private equity executives to fill a funding hole created by the regulation bill. Both measures are opposed by the industry but backed by President Obama.”

Read the article.

In an op-ed in this week’s Crain’s New York Business Kenneth Adams, president and CEO of The Business Council of New York State, Inc. warns that legislative proposal aimed at “punishing” Wall Street could cost jobs across New York state.

He writes: “Bashing Wall Street has become an obsession of many New York legislators. While they may score some political points, they risk doing great harm to our most important industry. Indeed, members of the New York state Legislature have introduced no fewer than 91 bills and resolutions this session aimed at punishing Wall Street.

The members of the Assembly and the Senate are pursuing everything from direct business income taxes and “excessive bonus” tax surcharges to regulations that restrict or add costs to specific financial-services activities—and more.Before state lawmakers rush to punish this sector, they should consider that more than 1.5 million New Yorkers depend on the financial services field for their jobs. Beyond the direct employment provided by financial firms, many professionals, real estate offices, restaurants, and hospitality and tourism enterprises rely on the dollars that this sector and its workers spend throughout our city and state.

It is alarming that so few elected officials seem concerned that these new tax and regulatory schemes would inflict a major blow to New York’s primary industry and thus to the state’s recovery and its economic future. One would be hard-pressed to imagine Michigan lawmakers bashing the auto industry with equal zeal. In most states, lawmakers seek to nurture their core industry.

In 2008, the financial services sector contributed $187 billion to New York’s gross state product: more than 16% of the total. The sector, the largest driver of economic output in the state, directly employed more than half a million New Yorkers that year.

Talk about the proverbial goose that lays the golden eggs: The financial services sector pays nearly $13 billion annually in New York state taxes and at least $5.5 billion in New York City levies. Now hardly seems to be an appropriate time to sharpen the ax.”

To read the rest of the column click here.

In a New York Times column Gretchen Morganson details the dangers posed by Freddie Mac and Fannie Mae.

She writes:  “If you blinked, you might have missed the ugly first-quarter report last week from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state.

Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.

But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.

That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.

The company’s inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion.

When Freddie sells properties, either before or after foreclosure, it generates losses of 39 percent, on average.”

Read the full column.

Brady Dennis of the Washington Post writes - “A dramatic proposal that could force banks to spin off their derivatives businesses, potentially costing them billions of dollars in revenue, has run into opposition on multiple fronts as the Senate prepares to take up legislation to remake financial regulations.

Obama administration officials, industry groups, banking regulators and lawmakers from both sides of the aisle have taken aim at the measure proposed by Sen. Blanche Lincoln (D-Ark.), chairman of the Senate agriculture committee.

Their main objection: If a central goal of regulatory overhaul is to make financial markets more transparent and accountable, Lincoln’s provision would have the opposite effect. Barring banks from trading in derivatives would force those lucrative business into corners of the market where there’s even less oversight, critics warn.”

To read more click here.