Promising Numbers Mask True Problems for Big Banks

19:38 30 October in Blog

A recently released report on the economic conditions and earnings of big banks seem to paint a picture of stability. However, a more plausible interpretation would attribute it to stagnation and the difficulties that lie ahead. Overall, investors see a rather unimpressive rate of return in terms of equity. Meanwhile, among the big banks, Citigroup came out slightly above expectations and J.P. Morgan Chase and Wells Fargo slumped a little in the third quarter.

Wells Fargo’s returns fared somewhat better, which is mostly due to the nature of banking versus more volatile capital markets. Even with this advantage, returns still didn’t live up to those from the year before, which were almost a whole point higher. J.P. Morgan, on the other hand, has hit a plateau at a 10% return rate, casting a more negative shadow on the recent numbers. Conversely, Citigroup looked strong in many areas. They even registered profits through legacy holdings and downsizing, but still only managed a 6.5% return.

Analysts have pinpointed several reasons for this lackluster performance. J.P. Morgan and Citigroup both still face legal challenges in the midst of the global slowdown. Also, interest rates have remained extremely low while demand for loans has remained steady. All this as regulations and the required amounts of capital have gone up.

Some experts cite these facts as proof that this reflects a permanent shift in returns that investors can expect in the future. Of course, banks also have to conform to stress tests performed by the Federal Reserve, which makes them less flexible than firms in other industries. Other macroeconomic factors don’t seem to bode well either, as new mortgages issued at J.P. Morgan, Citigroup and Wells Fargo fell by 14%, 51%, and 40%, respectively.

Trading in certain commodities and currencies has generated some growth. But these mostly signify slightly less anemic banks as opposed to strong ones. Some hold out hope for increased rates in the near future, although many investors have become restless due to the impact of current low rates on net interest margins.

Banks are still finding growth opportunities hard to come by without higher returns. Price-to-book multiples for J.P. Morgan and Citigroup have averaged 1.07 and .076 times, respectively. So, for the time being, the only solution for banks is to rely on cutting costs and looking for gains elsewhere. Despite the initial appearance of the numbers, they really just show that sometimes silver clouds have dark linings.

As the major money center banks continue to adjust their operations to Dodd-Frank’s lower earnings environment, cost cuts translate into less personal service. For small business owners, less personal service means a higher likelihood that their loan applications will be processed automatically through computer software. Thus, removing any discretion from the loan approval process. Capstone Capital Group, LLC., on the other hand, provides the personal service of an old time banker and does not rely on the credit of its clients to make their credit decisions. Capstone relies on the credit of its client’s customers to determine whether or not they will get the working capital they need.

As the Feds continue to scrutinize and further regulate the activity of Big Banks, and with interest rate increases looming in the future, small to midsized business loans are becoming increasingly more difficult to obtain. What is a business owner to do if he or she needs working capital to make payroll or expand operations? Capstone Capital Group, LLC has the solution. We have been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks.

Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group. For more information about our business funding solutions and how we can help your business grow and succeed, give us a call today at (212) 755-3636, or visit our website at www.capstonetrade.com.

Lawmakers Continue to Turn Up The Heat On Big Banks

20:49 16 October in Blog

In a recent hearing before the Senate Banking Committee, lawmakers continue to call for increased regulatory reform from regulators in an effort to reduce the risk big banks pose to the U.S. financial system.

A distinction was made between large banks and other financial institutions. Several senators encouraged regulators to lessen the burden, or possibly exempt, certain insurance companies and small to midsized banks from aspects of Dodd-Frank.

Sen. Bob Corker (R., Tenn.), for instance, called on regulators to take whatever steps necessary to make certain these banking institutions are not too complex so as not to be resolved through bankruptcy.

Other senators praised the Federal Government for promising to raise the capital requirements on the largest U.S. banks. According to Sen. Sherrod Brown (D., Ohio), there is a great deal of support in both the house and senate to implement stronger capital standards. Such standards could require big banks to retain additional earnings in order to build capital they would use to fund lending rather than allocating such earnings to their shareholders.

Banking executives believe that capital rules for the largest U.S. banks are already too high.

The senators’ frustration regarding Wall Street banks were further expressed in the hearing by Sen. Elizabeth Warren (D., Mass.). She inquired as to why individual bankers were not being held accountable for their nefarious actions which lead to the financial crisis. Ms. Warren’s concern is that lack of criminal prosecution may send the message that you can break the law, get away with it, and receive a bigger paycheck.

With lawmakers continuing their efforts to put pressure on regulators to come down hard on banks, the ones that ultimately suffer are those looking to banks for capital. Individuals and small business owners who rely on bank financing may find it more difficult to obtain the loan they so desperately need in order to make payroll or expand their business.

As lawmakers continue to apply pressure on regulators to impose more stringent requirements on the banking industry, it is clear small business and working capital loans will become ever more difficult to acquire. Capstone Capital Group, LLC understands the concerns of commercial borrowers who are considering bank financing. Accordingly, we offer various business finance options, including “Single Invoice Factoring” which functions as a safer alternative to traditional, and often times unpredictable, bank financing.

Our underwriting guidelines are simple, straightforward and not subject to stringent regulatory oversight and control.Capstone Capital Group, LLC specializes in Purchase Order factoring, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group. Give us a call today to find out how we can help you.

Citigroup, Other Big Banks Pass Midterm Stress Test

17:28 14 October in Blog

The nation’s largest banks continue to prepare for exams to be conducted by the Federal Reserve next year. These exams are to determine whether they have the financial strength to handle a severe downturn akin to the 2008 financial crisis.

Under the 2010 Dodd-Frank financial law, the nation’s too-big-to-fail banks are required to run themselves through stress tests designed to ensure that they can weather another financial crisis. They do this by determining if they have sufficient liquid capital to handle some hypothetical worst-case scenarios. The “stress tests” are the Fed’s way of mitigating against another dismal performance by the banking sector in response to a financial calamity.

Citibank, Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and others have been war gaming in preparation for the official Federal Reserve stress-tests. This round of tests is particularly important for Citigroup, which has had two requests for approval to return capital to shareholders rejected by the Fed. While Citigroup met the Fed’s capital requirements this year, the central bank expressed concern about the company’s competence in measuring the risks facing its global operations.

The Fed uses the so-called Tier 1 common capital ratio as its measure of a bank’s ability to buffer itself against another severe economic downturn. Federal regulations require that banks maintain a minimum of 5% common capital. Citibank chose a hypothetical sharp decline in emerging-market currencies as its doomsday scenario. Defaults by its sister banks in the Far East, and weaker housing markets throughout the region, it assumed, would subsequently occur. It predicted that its ratio would fall to 8.4% under that scenario. The bank’s projected ratio was 9.1% under the stress-test it conducted last year.

J.P. Morgan Chase and Morgan Stanley passed their own midterms with solid results. J. P. Morgan Chase predicted its capital levels under a hypothetical economic downturn would be 8.4%, down from 8.5% a year ago. Morgan Stanley projected its ratio would fall to 8.9%, down from a 9.5%. Bank of America Corp. said it would have the same capital level – 8.4%- that it had last year under a stressed scenario, but said it took on tougher hypotheticals on some fronts.

Goldman Sachs and Wells Fargo & Co predicted they would be in a better position to navigate strong financial headwinds than they were. Goldman pegged its estimated ratio at 10.1%, up from 8.9%, and Wells Fargo predicted its ratio would be up from 9.6%to 9.9%. The Federal Reserve’s annual stress-testing process typically concludes sometime in spring.

As big banks continue to shed riskier investments in order to pass the government’s stress test, small business will most likely suffer. This is because small business loans may be subject to increased risk ratings making borrowing more difficult. Capstone Capital Group, LLC understands the concerns of commercial borrowers who are considering bank financing. Accordingly, we offer various business finance options, including “Single Invoice Factoring” which functions as a safer alternative to traditional, and often times unpredictable, bank financing. Our underwriting guidelines are simple, straightforward and not subject to stringent regulatory oversight and control. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group. Give us a call today to find out how we can help you.

Regulators Rethink ‘Too Big to Fail’

19:18 03 October in Blog

“Too Big to Fail Banks” (TBTF) has a nice ring to it if you are a banker, but many struggling citizens are demanding tougher regulations on the members of the Federal Reserve System (FED). The United States is considering increasing the surcharge for being part of the FED. Some of this mirrors public anger over the High Street banks of London and the Occupy Movement against Wall Street banks of New York.

Bank Profits Up

In September 2014, FED Governor Daniel Tarullo announced that central banks were contemplating charging higher rates for member banks. This is occurring in an environment with the following characteristics: record bank profits, concerns over taxpayer bailout funds, admitted financial fraud, and economic turmoil. The banks have become a popular target for outrage.

Let us start with the Federal Reserve System. Most people don’t realize that this is a private organization, and it is not a member of the United States government. Yet, it has been given control over issuing the Federal Reserve Note (also known as the United States Dollar).

If that wasn’t enough of a conflict of interest, when the Federal Reserve member banks ran into financial problems, they received a bailout from the US taxpayers. This act increased the level of congressional oversight and scrutiny. After the bailout, these banks enjoyed record profits. Now, the top six (6) American banks control nearly 60 percent of the gross domestic product of the United States, leading to monopoly concerns.

Luxury Tax on Banks

Major League Baseball has a luxury tax on the teams with the largest salaries. The Federal Reserve is considering a similar proposition. Tarullo told the Senate Banking Committee: “We’re all trying to come to grips with what we really need in order to provide more assurance that these firms (top banks) do not threaten the financial system …” Analysts are lamenting that the same problems in 2008 that nearly led to the meltdown of the entire global banking system remain in 2014.

Global regulators have listed 29 banks (including eight in the United States) whose failure could lead to serious macroeconomic distress in the worldwide economy. For example, JP Morgan Chase Manhattan (JPM) may be forced to increase its capital requirements by 2.5 percent of its assets. Many fear that the balance sheets of the top banks remain woefully under-capitalized. The top banks had the biggest surcharge to avoid a repeat of TBTF bailouts.

As regulators continue to target banks, access to small business and working capital loans are sure to suffer as a result. Capstone Capital Group, LLC understands these concerns and offers various business finance options, including Purchase order factoring, “Single-Invoice Factoring,” which functions as a safer alternative to traditional, and oftentimes unpredictable, bank financing. Our underwriting guidelines are simple, straightforward, and not subject to stringent regulatory oversight and control. Capstone Capital Group, LLC specializes in Single-Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no-contract invoice selling in exchange for working capital from Capstone. Give us a call today to find out how we can help you.

Construction Loans on the Rise Says FDIC

04:57 19 September in Blog

According to recently released figures by the FDIC, outstanding construction loans for both residential and commercial projects increased to $223.2 billion in the second quarter. That is a 4% increase over the first quarter.

According to economists, the increase is due to the fact that lenders appear to be growing more comfortable extending credit, and the demand for credit is improving. Based on this, both residential and commercial construction should increase steadily moving forward. This is because the level of construction still remains low historically and vacancy rates are falling.

Vacancy rates have been declining in recent years. Since 2010, office building vacancies in the top 79 U.S. metropolitan cities have dropped slowly from their recent high of 17.6%.

Despite the small increase, construction lending has a ways to go to even approach half of its highs during the real estate boom. Homebuilders and lenders seem to agree the boost is slight, staying optimistic, as they have seen more banks of all sizes entering the construction lending space in the past 12 months.

It seems evident that one factor needed to revive the stalled home construction business is an increase in lending to builders. Home construction accounts for 5% of the U.S. gross domestic product but remains at 3.1% for the third consecutive year in this year’s second quarter.

Several factors which have impacted the new home market have been:

Shortages of lots and labor.
Stagnant wage growth for would-be home buyers.
Higher new home prices have steered some potential buyers to the cheaper resale market.

Nevertheless, the construction market seems to continue to gain steam, albeit slow, and according to some, banks seem to be a bit more aggressive at chasing the right deals which has helped loosen overall loan terms. According to Scott Laurie, chief executive of California builder the Olson Co. “It’s a good world today, the best it has been to be borrowing and building since the recovery started.”

With construction lending on the rise, it appears evident that more and more constructions jobs are slated to increase this year as well. Thus the need for invoice factoring by contractors, sub-contractors, and construction companies has never been greater. It is common knowledge that in the construction industry, customers are slow to pay contractors, sub-contractors, and construction companies for their work. Now these individuals and companies can get immediate cash for their invoices.

With Capstone Capital Group, LLC’s single invoice factoring program, we can help you move on to the next phase of your project right away. You can even take on new projects without worrying about additional working capital requirements.

We have been helping small to mid-sized businesses for years to obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you typically get from most banks. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

To learn more what we can do for you and your business, visit us on the web at https://capstonetrade.com/, or give us a call today at (212) 755-3636.

Construction Spending is Booming in New York Amid Certain Challenges

17:50 12 September in Blog

Despite the recent surge in construction spending in New York, recent reports indicate the number of permits issued are down compared with prior years. The building congress which promotes the construction industry in New York estimates that while construction spending will increase this year, only 20,000 residential units will be created. This number represents a mere 9% increase in the total number of units built since 2013; this figure is still relatively low since more than 30,000 units were constructed annually during the period between 2005 and 2008.

Although some might see this uptick in residential development spending as a major step in the right direction, others believe there are still some significant challenges which need to be overcome. Particularly in the area of affordable housing. Mayor Bill de Blasio has been pushing for more affordable housing, however experts point to certain challenges including, high cost of land, rezoning issues, and city bureaucracy which makes it difficult for developers to build anything other than luxury condominiums.

According to Richard Anderson, president of the Building Congress, “While the luxury residential market is booming in Manhattan and in parts of Brooklyn and Queens, we have our work cut out for us in terms of achieving Mayor de Blasio’s plan to create or preserve 200,000 units of affordable housing over the next decade.”

The good news coming out of all of this is that the number of jobs created as a result of this surge in construction spending. Experts estimate construction jobs to reach 122,700 in 2014. With construction jobs slated to increase this year, the need for invoice factoring by contractors, sub-contractors, and construction companies has never been greater. It is common knowledge that in the construction industry, customers are slow to pay and contractors, sub-contractors, and construction companies for their work. Now these individuals and companies can get immediate cash for their invoices.

With Capstone Capital Group, LLC’s single invoice factoring program, we can help you move on to the next phase of your project right away, or you can even take on new projects without worrying about additional working capital requirements.

We have been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

To learn more what we can do for our and your business, visit us on the web at www.capstonetrade.com, or give us a call today at (212) 755-3636.

Unintended Consequences Feared For New Rule on Loan Losses

19:35 28 August in Blog

Obviously, no bank could stay in business for very long if it lost money on every loan it made. Yet, new accounting rules set by the International Standards Accounting Board would force banks to post losses every time they grant someone a loan on the theory that a certain percentage of loans ultimately go bad. Critics are arguing that such measures are unnecessary and may have the unintended consequence of reducing the number of loans that banks make.

Less Transparency

Critics fear that if banks have to post every new loan as a potential loss, then banks that are having a bad quarter will simply cancel or postpone loans they might otherwise make in order to avoid negative perception. Some banks might do so even in a strong quarter simply to increase the appearance of profitability. The result might be less trustworthy reports and lower transparency in lending. Ironically, profits would look higher, but long term economic growth would be hurt by less available financing. This could be especially harmful during an economic downturn.

Effective in 2018

These new accounting rules would affect over a hundred countries, but would not take effect until 2018. The need for the new loan loss rule was considered necessary due to the financial crisis of 2007-2008, in which banks were criticized for failing to recognize loans that were going bad earlier, thereby making it impossible for investors to protect themselves from bad lending policies.

Mixed Results

Treating every loan as a potential loss at the outset makes that kind of fiscal blindness impossible. However, it also makes granting each new loan a threat to a bank’s bottom line, at least on paper and in the short term. The fear is that this will result in delaying or denying loans in order produce artificial profits on paper.

Alternative Proposals

Some members of the Accounting Standards Board are suggesting alternative rules, such as a rule that would force a portion of the interest earned on each loan to be held in reserve in case the loan goes bad. This would accomplish the same goal of getting banks to keep more in reserve to cover their losses, but without creating incentives to deny loans or manipulate the books by strategic delays. It will be interesting to see if that or other alternatives to the currently planned loan loss rule are successfully introduced between now and 2018.

Alternative Funding Sources

While government continues to restrict growth in the banking sector by making loans less available to borrowers, there are options. Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks. Capstone Capital Group, LLC specializes in Purchase order factoring, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

Recovery is Slow for Small Business Lending

17:46 21 August in Blog

While the economy slogs along at a snail’s pace and businesses of all sizes continue to persevere, banks remain steadfast in reigning back loans for small businesses. Even though loans to small businesses were up 1% from last September, they are still 18% less than what they were in 2008 according to the Federal Deposit Insurance Corporation.

Traditionally, small businesses were able to obtain necessary working capital loans through small local banks. For decades, local business owners sat down with bank executives and built relationships that were beneficial for both the bank and the business. However, since the housing bust in 2007 which caused numerous bank failures, many of the surviving banks have changed their underwriting practices and have literally converted loan approvals into a checklist. Relationship lending is virtually gone now and small business owners have had to consider alternate forms of financing to maintain their livelihood.

Some business owners have tapped into their savings or retirement plans, mortgaged their homes, asked money from family and friends, and some have even turned to high cost, short term loans to keep their entrepreneurial hopes alive for just a little bit longer. While a majority of these borrowers have good credit and more than two years history of being in business, local bank failures over the past few years and the Dodd Frank to big to fail bank legislation have caused the remaining banks to shy away from small business funding. Instead of developing the necessary expertise to handle small businesses accounts, they instead choose to penalize small businesses by showing them the door.

Although some small business owners have found it difficult to obtain the necessary capital they need to maintain and grow their businesses from their local bank, options do exist. Fortunately, Capstone Capital Group, LLC has the solution.

Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get a bank. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group. Call Capstone at (212) 755-3636 and speak with a representative today.

Regulators Remain Unconvinced of Big Bank’s Ability to Safely Wind Down in a Financial Crisis

19:14 15 August in Blog

As part of the 2010 Dodd-Frank regulatory scheme, banks are required to submit an annual “living will” detailing, among other things, the bank’s operations and exposures, in addition to a plan of how the bank could be dismantled without relying on tax payer funded support in the event they reach a point of potential failure during a financial crisis.

After a review by the Federal Reserve (the Feds) and the Federal Deposit Insurance Corporation (FDIC) of recently submitted bankruptcy plans of eleven of the nation’s largest banking institutions, the Feds and the FDIC chastised the plans as being “unrealistic or inadequately supported” and that the plans “fail to make, or even identify the kinds of changes in firm structure and practices that would be necessary to enhance the prospect for an orderly failure.”

Regulators set a time frame for these banks to address the apparent deficiencies in their plans by July 2015 or face tougher capital requirements, growth restrictions, and even go so far as to break up the bank if they are unable to make significant progress.

In order to avoid harsher rules and possible dismantling, regulators say banks can take steps to make their bankruptcy plans by establishing a rational and less complex legal structure, essentially showing they can quickly produce reliable information about their exposures, and amending derivatives contracts to make them easier to bring through bankruptcy.

These actions by regulators gives a clear sign they believe that banks aren’t doing enough to insulate themselves and protect the tax payer in the event of a future financial crisis. With increased regulation and scrutiny looming over the banking industry, which isn’t likely to ease up any time soon, banks are feeling the pressure to restrain growth by curbing lending practices.

Some borrowers, like small business owners, may have a more difficult time obtaining the necessary financing they need to maintain and grow their business. Unfortunately, the focus on unwinding banks and compliance with regulations takes away resources that can be used to help finance small businesses. Capstone Capital Group, LLC has funding solutions that can get you the financing the big banks can’t provide.

Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks. Capstone Capital Group, LLC specializes in Business finding solutions, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

Pulling Back the Reigns of Growth – Small Banks Restrain Progress Fearing Costly Regulations

14:55 08 August in Blog

Banks have come under intense scrutiny in recent years following the financial crisis that began in 2007. The regulatory pressure doesn’t seem to be letting up anytime soon as regulators attempt to reign in banks designated as “systemically important.”

According to regulators, systemically important banks are those which report assets of more than $50 billion on average for four quarters in a row. Once a bank has achieved this status, banks are required to comply with, among other things, stringent capital requirements, submit to yearly “stress tests” and to create processes for the winding down of a bank in the event of a crisis.

The purpose of placing a $50 billion asset threshold amount, according to regulators, is to keep a closer eye on banks whose potential problems could endanger the broader financial system. However, some critics within the banking industry argue the threshold is too low and that banks who come close to that amount are far from “financial giants”. This issue has caught the eye of Federal Reserve governor Daniel Tarullo, who stated in a speech that it might make more sense to increase the threshold from $50 billion to $100 billion for applying certain rules. The suggestion being that the “stress test” process seems unnecessary for banks under $100 billion.

As a consequence of these stringent and costly regulatory requirements, some small asset banks like New York Community Bank (NYCB), whose reported assets in the first quarter of 2014 was $47.6 billion, has come out with a statement that it is restraining its lending growth citing loans amount to assets. If other small banks, like NYCB, who are coming up to the $50 billion threshold limit decide to take a similar approach and restrain growth by curbing its lending practices, some borrowers, like small business owners, may have a more difficult time obtaining the necessary financing they need to maintain and grow their business. Fortunately, Capstone Capital Group, LLC has the solution.

Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks. Capstone Capital Group, LLC specializes in Purchase Order factoring, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

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