Viacom Inc., which owns Paramount Pictures and cable channels MTV, BET and Comedy Central, said Thursday that it promoted its chief financial officer to the new position of chief operating officer.
Viacom said Thomas E. Dooley, 53, will oversee the company's financial, legal, strategic planning, human resources, investor relations and communications activities. He will continue to report to CEO Philippe Dauman and serve on Viacom's board.
Dooley joined Viacom in 1980. He will serve as CFO until a replacement is named.Dooley's employment agreement with Viacom was set to expire next year. It now has been extended through December 2016.
Friday, May 28, 2010
First South Bancorp Ranks On U.S. Banker Magazine
First South Bancorp, Inc. (Nasdaq: FSBK) (the "Company"), parent holding company of First South Bank (the "Bank"), has been recognized by U.S. Banker magazine as 27th among the top 200 publicly traded community banks and thrifts in the United States with less than $2 billion of assets at December 31, 2009.
The listing, which appears in the June 2010 edition of U.S. Banker magazine, was compiled by rating the top 200 publicly traded community banks and thrifts in the United States with less than $2 billion of assets ranked by 3-year average return on equity (ROE) as of December 31, 2009. Of the top 200 publicly traded community banks and thrifts identified in the U.S. Banker rankings, First South Bancorp ranks 27th, with a 13.62% 3-year average ROE.
Bill Wall, Executive Vice President and Chief Financial Officer of the Company stated, "We are pleased to be recognized by the U.S. Banker for our 3-year average return on equity. This ranking reflects the Company's success of managing its equity position. We have focused on maintaining a core earnings stream, while controlling operating expenses in order to enhance our operating performance.
The U.S. Banker ranking exemplifies the visibility of First South Bancorp's operating performance among the national banking, business and investment communities and places us at the top of our peer group in 3-year average return on equity. This performance ranking also places us with the highest 3-year average return on equity among all publicly traded community banks and thrifts headquartered in the state of North Carolina." First South Bank operates through its main office headquartered in Washington, North Carolina, and has 28 full service branch offices and one loan production office, located throughout eastern, northeastern, southeastern and central North Carolina. The Bank offers a broad range of financial products and services, including a leasing company. The Bank also makes securities brokerage services available through an affiliation with an independent broker-dealer.
First South Bancorp's common stock is listed on the NASDAQ Global Select Market under the symbol FSBK. Additional corporate information, product and service descriptions and online services are available to investors and customers through First South Bank's website at www.firstsouthnc.com.
The listing, which appears in the June 2010 edition of U.S. Banker magazine, was compiled by rating the top 200 publicly traded community banks and thrifts in the United States with less than $2 billion of assets ranked by 3-year average return on equity (ROE) as of December 31, 2009. Of the top 200 publicly traded community banks and thrifts identified in the U.S. Banker rankings, First South Bancorp ranks 27th, with a 13.62% 3-year average ROE.
Bill Wall, Executive Vice President and Chief Financial Officer of the Company stated, "We are pleased to be recognized by the U.S. Banker for our 3-year average return on equity. This ranking reflects the Company's success of managing its equity position. We have focused on maintaining a core earnings stream, while controlling operating expenses in order to enhance our operating performance.
The U.S. Banker ranking exemplifies the visibility of First South Bancorp's operating performance among the national banking, business and investment communities and places us at the top of our peer group in 3-year average return on equity. This performance ranking also places us with the highest 3-year average return on equity among all publicly traded community banks and thrifts headquartered in the state of North Carolina." First South Bank operates through its main office headquartered in Washington, North Carolina, and has 28 full service branch offices and one loan production office, located throughout eastern, northeastern, southeastern and central North Carolina. The Bank offers a broad range of financial products and services, including a leasing company. The Bank also makes securities brokerage services available through an affiliation with an independent broker-dealer.
First South Bancorp's common stock is listed on the NASDAQ Global Select Market under the symbol FSBK. Additional corporate information, product and service descriptions and online services are available to investors and customers through First South Bank's website at www.firstsouthnc.com.
New Accounting Rules Will Have A Major Impact On Leasing Real Estate
As reported on www.cfo.com
Equipment leasing is finally on the upswing. The volume of new commercial-equipment leasing rose 15% in April, compared with the same period in 2009. That's the first year-over-year increase seen in the $518 billion equipment-finance market since July 2008, according to the Equipment Leasing and Finance Association, which released its latest data on Tuesday. Month-to-month volume was up too, rising 9% to $4.7 billion. The uptick is "a positive sign that businesses are starting to invest in capital assets," says ELFA president William Sutton.
But while the rising tide is welcome, accounting for leased equipment, as well as leased property, may soon get more complicated. The Financial Accounting Standards Board and the International Accounting Standards Board are rewriting the rules on lease accounting, and the exposure draft of their converged standard is scheduled to be released in June. The project is a contentious one: based on their reading of the preliminary discussion paper, finance executives have described the proposed new rules as "onerous" and "complex," two traits that the standard-setters have worked hard to purge from accounting rules as they rewrite them.
The new standard will replace FAS 13 in the United States and IAS 17 in countries using international financial reporting standards. Essentially, it erases the distinction between operating and capital leases and pulls all leases back on the balance sheet, says Jay Hanson, national director of accounting at McGladrey & Pullen.
The proposal does this by eliminating the so-called 90% rule. Currently, if the present value of lease rental payments amounts to more than 90% of the asset, the contract is considered a capital lease and the asset and liability are placed on the lessee's balance sheet. If the payments amount to less than 90% of the asset's value, the lease is considered an operating lease and the lessee simply records the payments as expenses on the income statement.
(Lessor accounting rules will also be addressed in the exposure draft, but it is unclear what changes to existing rules will be presented, as the boards were handling lessee and lessor accounting separately during deliberations.)
"In one sense, some parts of this project make the accounting easier," comments Hanson, because companies won't have to spend time figuring out if a transaction is an operating or capital lease. But then, he adds, complexity "creeps in."
Complication No. 1: Renewal Options
Lease renewal options are one area of contention. Under existing rules, a company uses the minimum lease payment to calculate the present value, and posts that number to the balance sheet. However, under the proposed rule, management must make a judgment regarding what is the most "likely" lease term, and that means considering any renewal options attached to the lease. Since companies negotiate such options because they are unsure of what they will be doing at the end of the lease term, that uncertainty would now has to be factored into assets and liabilities that wind up on the balance sheet, points out Mindy Berman, managing director of corporate capital markets at Jones Lang LaSalle, a real estate service provider.
Consider two retailers in the same mall with identical leases. The "subjective" nature of the draft rule means that each retailer could be capitalizing different amounts, says Berman. In her view that distorts comparability, rather than providing better visibility into lease transactions, which is one of the stated purposes of rewriting the rule.
Hanson says the renewal provision is "controversial" because companies are putting a liability on the books for something that they are not contractually obligated to accept. Under the proposal, he explains, a company that agrees to a 10-year lease with a 5-year renewal option would have to show the asset and liability related to a 15-year lease if management thought it was likely that the company would renew after a decade. The intent is to "portray the best shot at economic reality," says Hanson, but the draft rule "adds complexity" because it is asking companies to make an up-front judgment about the future. (Further complicating the valuation is the proposal's mandate that the lease estimate be remeasured every reporting period.)
Such future vision may not be a problem for a manufacturer with a single facility, but for companies with a substantial leasing portfolio, the financial modeling could be burdensome. In a comment letter on lease accounting sent to FASB and the IASB, Devin Ozan, controller at McDonald's, said the fast-food giant would incur "significant personnel costs" on an ongoing basis, "as judgment and insight would need to be applied to update estimates for our leases."
McDonald's also has "significant concerns" with respect to remeasuring rental payments every reporting period, wrote Ozan, noting that material changes are triggered much less frequently "than quarterly or annually." Typically, McDonald's tries to secure 20-year leases to match its conventional franchise arrangement, according to Ozan.
Complication No. 2: Contingent Rent
More complexity relates to estimates of contingent rent. Contingencies associated with real estate leases include, for example, payments tied to a percentage of sales or the Consumer Price Index. Witness a company that includes a percentage of monthly sales in its rent payment. Under the draft rule, the company is required to forecast what its sales will be over the lease term, apply to that the agreed-on percentage, and put that total on the balance sheet. Making accurate sales forecasts is challenging, notes Berman.
In his comment letter on the proposal, JC Penney controller Dennis Miller said that contingent rent should not be included as part of a lease obligation. Contingent rent was never a "significant item" for the retailer, he wrote, and is not expected to be one in the future. "Including a contingent rent assumption would add a great deal of complexity and the effort required would outweigh any benefit to be derived from its inclusion," stated Miller.
Despite companies' complaints about the difficulty of calculating lease contingencies, some experts believe the numbers already exist in corporate financial systems. "Many companies already have this information, as it is often used for internal budgeting and forecasting purposes, especially if they've entered into contracts with contingencies and extensions," says Barbara Davidson, a technical manager at the IASB. Nevertheless, she appreciates that some companies may have to revisit internal systems and processes to fine-tune the data for financial reporting if the proposed rule is issued in its current form. "For companies with a large number of leases, management will have to consider how to include this information as part of their regular reporting processes," she adds.
A Trillion-Dollar Adjustment?
Berman of Jones Lang LaSalle notes that the investment community has long taken off-balance-sheet leases into account when evaluating a company's risk profile. Rating agencies have always treated leases as capital items and adjusted a company's leverage accordingly; banks have done so, too. Still, the proposed standard is likely to affect thousands of companies around the world. Many companies "will have to adjust their business models to come to grips with the new rules," says Hanson.
Related Articles
Although FASB and the IASB haven't finalized the transition guidance or effective dates of the proposed rule, there are indications that it will apply to existing leases. That could eventually force lessee corporations to capitalize more than $1 trillion worth of operating leases. In a 2005 report, the Securities and Exchange Commission estimated the value of operating leases held by U.S. publicly traded companies to be $1.3 trillion, notes Berman. That number is likely much higher today, she says, considering the number of private-company leases that are not reported publicly and the general growth in the real estate and equipment leasing markets.
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Equipment leasing is finally on the upswing. The volume of new commercial-equipment leasing rose 15% in April, compared with the same period in 2009. That's the first year-over-year increase seen in the $518 billion equipment-finance market since July 2008, according to the Equipment Leasing and Finance Association, which released its latest data on Tuesday. Month-to-month volume was up too, rising 9% to $4.7 billion. The uptick is "a positive sign that businesses are starting to invest in capital assets," says ELFA president William Sutton.
But while the rising tide is welcome, accounting for leased equipment, as well as leased property, may soon get more complicated. The Financial Accounting Standards Board and the International Accounting Standards Board are rewriting the rules on lease accounting, and the exposure draft of their converged standard is scheduled to be released in June. The project is a contentious one: based on their reading of the preliminary discussion paper, finance executives have described the proposed new rules as "onerous" and "complex," two traits that the standard-setters have worked hard to purge from accounting rules as they rewrite them.
The new standard will replace FAS 13 in the United States and IAS 17 in countries using international financial reporting standards. Essentially, it erases the distinction between operating and capital leases and pulls all leases back on the balance sheet, says Jay Hanson, national director of accounting at McGladrey & Pullen.
The proposal does this by eliminating the so-called 90% rule. Currently, if the present value of lease rental payments amounts to more than 90% of the asset, the contract is considered a capital lease and the asset and liability are placed on the lessee's balance sheet. If the payments amount to less than 90% of the asset's value, the lease is considered an operating lease and the lessee simply records the payments as expenses on the income statement.
(Lessor accounting rules will also be addressed in the exposure draft, but it is unclear what changes to existing rules will be presented, as the boards were handling lessee and lessor accounting separately during deliberations.)
"In one sense, some parts of this project make the accounting easier," comments Hanson, because companies won't have to spend time figuring out if a transaction is an operating or capital lease. But then, he adds, complexity "creeps in."
Complication No. 1: Renewal Options
Lease renewal options are one area of contention. Under existing rules, a company uses the minimum lease payment to calculate the present value, and posts that number to the balance sheet. However, under the proposed rule, management must make a judgment regarding what is the most "likely" lease term, and that means considering any renewal options attached to the lease. Since companies negotiate such options because they are unsure of what they will be doing at the end of the lease term, that uncertainty would now has to be factored into assets and liabilities that wind up on the balance sheet, points out Mindy Berman, managing director of corporate capital markets at Jones Lang LaSalle, a real estate service provider.
Consider two retailers in the same mall with identical leases. The "subjective" nature of the draft rule means that each retailer could be capitalizing different amounts, says Berman. In her view that distorts comparability, rather than providing better visibility into lease transactions, which is one of the stated purposes of rewriting the rule.
Hanson says the renewal provision is "controversial" because companies are putting a liability on the books for something that they are not contractually obligated to accept. Under the proposal, he explains, a company that agrees to a 10-year lease with a 5-year renewal option would have to show the asset and liability related to a 15-year lease if management thought it was likely that the company would renew after a decade. The intent is to "portray the best shot at economic reality," says Hanson, but the draft rule "adds complexity" because it is asking companies to make an up-front judgment about the future. (Further complicating the valuation is the proposal's mandate that the lease estimate be remeasured every reporting period.)
Such future vision may not be a problem for a manufacturer with a single facility, but for companies with a substantial leasing portfolio, the financial modeling could be burdensome. In a comment letter on lease accounting sent to FASB and the IASB, Devin Ozan, controller at McDonald's, said the fast-food giant would incur "significant personnel costs" on an ongoing basis, "as judgment and insight would need to be applied to update estimates for our leases."
McDonald's also has "significant concerns" with respect to remeasuring rental payments every reporting period, wrote Ozan, noting that material changes are triggered much less frequently "than quarterly or annually." Typically, McDonald's tries to secure 20-year leases to match its conventional franchise arrangement, according to Ozan.
Complication No. 2: Contingent Rent
More complexity relates to estimates of contingent rent. Contingencies associated with real estate leases include, for example, payments tied to a percentage of sales or the Consumer Price Index. Witness a company that includes a percentage of monthly sales in its rent payment. Under the draft rule, the company is required to forecast what its sales will be over the lease term, apply to that the agreed-on percentage, and put that total on the balance sheet. Making accurate sales forecasts is challenging, notes Berman.
In his comment letter on the proposal, JC Penney controller Dennis Miller said that contingent rent should not be included as part of a lease obligation. Contingent rent was never a "significant item" for the retailer, he wrote, and is not expected to be one in the future. "Including a contingent rent assumption would add a great deal of complexity and the effort required would outweigh any benefit to be derived from its inclusion," stated Miller.
Despite companies' complaints about the difficulty of calculating lease contingencies, some experts believe the numbers already exist in corporate financial systems. "Many companies already have this information, as it is often used for internal budgeting and forecasting purposes, especially if they've entered into contracts with contingencies and extensions," says Barbara Davidson, a technical manager at the IASB. Nevertheless, she appreciates that some companies may have to revisit internal systems and processes to fine-tune the data for financial reporting if the proposed rule is issued in its current form. "For companies with a large number of leases, management will have to consider how to include this information as part of their regular reporting processes," she adds.
A Trillion-Dollar Adjustment?
Berman of Jones Lang LaSalle notes that the investment community has long taken off-balance-sheet leases into account when evaluating a company's risk profile. Rating agencies have always treated leases as capital items and adjusted a company's leverage accordingly; banks have done so, too. Still, the proposed standard is likely to affect thousands of companies around the world. Many companies "will have to adjust their business models to come to grips with the new rules," says Hanson.
Related Articles
Although FASB and the IASB haven't finalized the transition guidance or effective dates of the proposed rule, there are indications that it will apply to existing leases. That could eventually force lessee corporations to capitalize more than $1 trillion worth of operating leases. In a 2005 report, the Securities and Exchange Commission estimated the value of operating leases held by U.S. publicly traded companies to be $1.3 trillion, notes Berman. That number is likely much higher today, she says, considering the number of private-company leases that are not reported publicly and the general growth in the real estate and equipment leasing markets.
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Thursday, May 27, 2010
Former Bank Of America CFO Hired By Hendrick Automotive Group
Retired Bank of America Corp. executive Ed Brown III is making a career change.
The former head of corporate and investment banking at the Charlotte bank joined Hendrick Automotive Group as chief financial officer this month and will become chief executive Jan. 1 with the retirement of Jim Huzl.
The Charlotte-based company is one of the nation's largest auto retailers, operating 59 dealerships, 87 franchises and 18 repair shops in 10 states from the Carolinas to California. Hendrick Automotive said Huzl is retiring as planned after 25 years with the company. He has been CEO since 2005.Brown is taking over a CFO post that was unfilled. He retired in 2004 after a 32-year career with the bank that became Bank of America through a wave of acquisitions.
The former head of corporate and investment banking at the Charlotte bank joined Hendrick Automotive Group as chief financial officer this month and will become chief executive Jan. 1 with the retirement of Jim Huzl.
The Charlotte-based company is one of the nation's largest auto retailers, operating 59 dealerships, 87 franchises and 18 repair shops in 10 states from the Carolinas to California. Hendrick Automotive said Huzl is retiring as planned after 25 years with the company. He has been CEO since 2005.Brown is taking over a CFO post that was unfilled. He retired in 2004 after a 32-year career with the bank that became Bank of America through a wave of acquisitions.
New CFO at DocuSign
DocuSign(R), provider of the most trusted SaaS-based electronic signature platform, announced that Mike Dinsdale has been appointed chief financial officer of DocuSign. Dinsdale brings a wealth of financial and strategic experience and will fill a key role in helping drive DocuSign's explosive growth in the eSignature market.
"I am excited to join DocuSign at this pivotal growth stage and work with this dynamic team in leading the eSignature revolution," said Dinsdale. "I am impressed with the phenomenal impact the DocuSign eSignature platform has on its customers and its ability to increase productivity, streamline business processes and reduce costs." Dinsdale comes to DocuSign with a proven track record of driving organizations to hyper growth. Most recently, Dinsdale served as CFO of Lithium, a SaaS platform and application suite provider, hosting some of the worlds' largest and most successful brand affinity and support communities. In addition to setting Lithium's financial strategy and managing the operations of finance, HR, corporate development, legal and business development, Dinsdale was also responsible for raising millions in equity financial over three rounds and two strategic acquisitions, including the acquisition of Scout Labs. During his tenure, Lithium's valuation increased dramatically, positioning the company as the clear leader in Social CRM.
"I am excited to join DocuSign at this pivotal growth stage and work with this dynamic team in leading the eSignature revolution," said Dinsdale. "I am impressed with the phenomenal impact the DocuSign eSignature platform has on its customers and its ability to increase productivity, streamline business processes and reduce costs." Dinsdale comes to DocuSign with a proven track record of driving organizations to hyper growth. Most recently, Dinsdale served as CFO of Lithium, a SaaS platform and application suite provider, hosting some of the worlds' largest and most successful brand affinity and support communities. In addition to setting Lithium's financial strategy and managing the operations of finance, HR, corporate development, legal and business development, Dinsdale was also responsible for raising millions in equity financial over three rounds and two strategic acquisitions, including the acquisition of Scout Labs. During his tenure, Lithium's valuation increased dramatically, positioning the company as the clear leader in Social CRM.
Grant Thornton Surverys CFO on Lease Accounting Rule Reforms
In a national survey of U.S. CFOs and senior comptrollers conducted by Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, the vast majority (81%) support reforming lease accounting rules and half (51%) would continue to use leases more or less in the same manner as they currently do. However, there is less agreement on how to measure the lease obligation. A majority prefers to measure the lease obligation as either the noncancellable amounts due or those amounts plus amounts that are highly probable and reliably measurable instead of the more comprehensive estimates currently under consideration by the FASB and the IASB.
"The results show very strong support for putting lease obligations on the balance sheet," said John Hepp, a Grant Thornton Professional Standards partner.
"However, that level of support depends on the Boards using a simple, reliable measure of the lease obligation rather than a complex model that incorporates contingent costs or optional renewal periods other than bargain renewals.
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
"The results show very strong support for putting lease obligations on the balance sheet," said John Hepp, a Grant Thornton Professional Standards partner.
"However, that level of support depends on the Boards using a simple, reliable measure of the lease obligation rather than a complex model that incorporates contingent costs or optional renewal periods other than bargain renewals.
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Companies with Excess Office Space Find A Challenging Sublease Market
The New York Times published an important article about the large amount of commercial office space in New York City that is leased but not being used. Many companies survived the economic downturn by a combination of cost cutting, consolidation and reduced product and service offerings. These actions led to companies no longer needing thousands of square feet of office and industrial space that is part of a long term leasing obligation. In past markets many tenants would pursue a subleasing strategy. This may no longer be effective or easy to do.
As reported by Julie Satow in The New York Times,
"Despite rosy news about job growth in New York and the prospect of a rebound in commercial real estate, the market’s recovery could be delayed by a large amount of vacant office space that would normally be sublet or otherwise absorbed in a healthy market, new data show.According to the research firm CoStar Group, nearly 18 million square feet of unoccupied office space in Manhattan has not been factored into the market’s vacancy rate. This so-called shadow space consists of individual desks as well as entire floors that are empty after layoffs and consolidations. Because these vacant areas are not for rent, they are not recorded anywhere and so are hard to pinpoint.
As the economy improves and employment picks up, tenants will spend the next several years backfilling these shadow spaces before venturing into the leasing market. That will postpone a rise in commercial rents and drive down building values.“There’s no doubt that shadow space is going to mute a recovery,” said Robert L. Freedman, the chairman of the tristate region for Colliers International, a commercial real estate firm. Mr. Freedman said he expected that rents would not rise for at least three years. The amount of shadow space will also weaken the investment sales market, said Robert A. Knakal, the chairman of Massey Knakal. Vacancy and positive absorption — a net increase in demand for space — “are two of the most important metrics” for building values, he said.
CoStar determined the amount of shadow space by taking the unemployment figures in New York City from the first quarter of 2008 through the first quarter of 2010 — roughly 104,000 jobs lost — and multiplying this by 250 square feet, the industry standard for how much space each employee uses. This resulted in 26.1 million square feet that should have been vacated during the downturn. Instead, only 8.5 million square feet was put on the market — a 17.6-million-square-foot discrepancy. This results in a vacancy rate of 11.2 percent rather than 7.9 percent, with roughly 15 additional quarters of growth needed to fill that space, according to CoStar.
James P. Stuckey, a dean at the Schack Institute of Real Estate at New York University and a former executive vice president for the developer Forest City Ratner, agreed. “These figures make sense. Shadow space is always an issue during downturns as companies grapple with how best to handle it.”
It is normal for tenants to hold on to some shadow space, typically maintaining a 5 percent vacancy to give them flexibility for hiring or layoffs. The extent of the job losses in the city over the last few years, however, has pushed the shadow inventory to 10 percent for many tenants, leasing brokers said.
There are several reasons companies hold onto this excess space, one of the most common being the difficulty of subdividing it and creating a contiguous block for lease.
“If you have one million square feet spread across 25 floors, that shadow space may be a few seats here, a few offices there,” said Robert J. Alexander, chairman of the tristate region for CB Richard Ellis. “It would be really expensive to consolidate this.” In addition, with office rents low, it is not clear that the tenant could even recoup their costs should they put the space on the market.
Perhaps an even larger factor driving companies’ decisions is the financial write-downs incurred when subleasing vacant space. When a tenant puts sublease space on the market, it must set aside a financial reserve to account for any projected losses between the rents they are paying and their sublease terms. This reserve depresses short-term earnings, something that many companies, especially those already under financial duress, are reluctant to do.
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
While it is nearly impossible to determine the magnitude of the write-downs for individual tenants, it is “a very important component when big companies make decisions. They won’t make a major strategic real estate decision until they understand the financial implications,” said Robert Goodman, an executive managing director at Colliers International who spent several years at Merrill Lynch and specializes in financial firms.
In addition to subleasing shadow space, it is also possible to pay the landlord to get out of a lease term. This can be difficult to negotiate, since landlords are often unwilling to take a chance on finding a replacement tenant.
Still, several tenants are now venturing into the market, and if they are successful, it could burn off some shadow inventory. Citigroup, for example, is offering more than 130,000 square feet on three floors at 111 Wall Street, a building they own, according to CoStar. In addition, the CIT Group is putting some 130,000 square feet at 505 Fifth Avenue on the market while JPMorgan Chase is looking to shed in excess of 300,000 feet at 245 Park Avenue, said Cynthia Wasserberger, a managing director at Jones Lang LaSalle.
Perhaps the most vulnerable area is Downtown Manhattan, which has roughly five million square feet of space available. “Generally, downtown is going to experience more of an impact from all this shadow space than Midtown,” Ms. Wasserberger said.
For example, Goldman Sachs is vacating several buildings to move into its new headquarters, Bank of America is giving up a huge block at the World Financial Center, and both the American International Group and JPMorgan Chase are shedding offices. And there will be new space coming online at the World Trade Center.
“Shadow space is difficult to determine, but any way you slice it, it is a significant factor in the recovery,” said Benjamin F. Kursman, a partner at the law firm Herrick, Feinstein who specializes in leasing deals. “Even as we see some green shoots in the economy, this is definitely going to be a drag on the resurgence of the commercial real estate market.”
As reported by Julie Satow in The New York Times,
"Despite rosy news about job growth in New York and the prospect of a rebound in commercial real estate, the market’s recovery could be delayed by a large amount of vacant office space that would normally be sublet or otherwise absorbed in a healthy market, new data show.According to the research firm CoStar Group, nearly 18 million square feet of unoccupied office space in Manhattan has not been factored into the market’s vacancy rate. This so-called shadow space consists of individual desks as well as entire floors that are empty after layoffs and consolidations. Because these vacant areas are not for rent, they are not recorded anywhere and so are hard to pinpoint.
As the economy improves and employment picks up, tenants will spend the next several years backfilling these shadow spaces before venturing into the leasing market. That will postpone a rise in commercial rents and drive down building values.“There’s no doubt that shadow space is going to mute a recovery,” said Robert L. Freedman, the chairman of the tristate region for Colliers International, a commercial real estate firm. Mr. Freedman said he expected that rents would not rise for at least three years. The amount of shadow space will also weaken the investment sales market, said Robert A. Knakal, the chairman of Massey Knakal. Vacancy and positive absorption — a net increase in demand for space — “are two of the most important metrics” for building values, he said.
CoStar determined the amount of shadow space by taking the unemployment figures in New York City from the first quarter of 2008 through the first quarter of 2010 — roughly 104,000 jobs lost — and multiplying this by 250 square feet, the industry standard for how much space each employee uses. This resulted in 26.1 million square feet that should have been vacated during the downturn. Instead, only 8.5 million square feet was put on the market — a 17.6-million-square-foot discrepancy. This results in a vacancy rate of 11.2 percent rather than 7.9 percent, with roughly 15 additional quarters of growth needed to fill that space, according to CoStar.
James P. Stuckey, a dean at the Schack Institute of Real Estate at New York University and a former executive vice president for the developer Forest City Ratner, agreed. “These figures make sense. Shadow space is always an issue during downturns as companies grapple with how best to handle it.”
It is normal for tenants to hold on to some shadow space, typically maintaining a 5 percent vacancy to give them flexibility for hiring or layoffs. The extent of the job losses in the city over the last few years, however, has pushed the shadow inventory to 10 percent for many tenants, leasing brokers said.
There are several reasons companies hold onto this excess space, one of the most common being the difficulty of subdividing it and creating a contiguous block for lease.
“If you have one million square feet spread across 25 floors, that shadow space may be a few seats here, a few offices there,” said Robert J. Alexander, chairman of the tristate region for CB Richard Ellis. “It would be really expensive to consolidate this.” In addition, with office rents low, it is not clear that the tenant could even recoup their costs should they put the space on the market.
Perhaps an even larger factor driving companies’ decisions is the financial write-downs incurred when subleasing vacant space. When a tenant puts sublease space on the market, it must set aside a financial reserve to account for any projected losses between the rents they are paying and their sublease terms. This reserve depresses short-term earnings, something that many companies, especially those already under financial duress, are reluctant to do.
Sponsor: Cambridge Consulting Group
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While it is nearly impossible to determine the magnitude of the write-downs for individual tenants, it is “a very important component when big companies make decisions. They won’t make a major strategic real estate decision until they understand the financial implications,” said Robert Goodman, an executive managing director at Colliers International who spent several years at Merrill Lynch and specializes in financial firms.
In addition to subleasing shadow space, it is also possible to pay the landlord to get out of a lease term. This can be difficult to negotiate, since landlords are often unwilling to take a chance on finding a replacement tenant.
Still, several tenants are now venturing into the market, and if they are successful, it could burn off some shadow inventory. Citigroup, for example, is offering more than 130,000 square feet on three floors at 111 Wall Street, a building they own, according to CoStar. In addition, the CIT Group is putting some 130,000 square feet at 505 Fifth Avenue on the market while JPMorgan Chase is looking to shed in excess of 300,000 feet at 245 Park Avenue, said Cynthia Wasserberger, a managing director at Jones Lang LaSalle.
Perhaps the most vulnerable area is Downtown Manhattan, which has roughly five million square feet of space available. “Generally, downtown is going to experience more of an impact from all this shadow space than Midtown,” Ms. Wasserberger said.
For example, Goldman Sachs is vacating several buildings to move into its new headquarters, Bank of America is giving up a huge block at the World Financial Center, and both the American International Group and JPMorgan Chase are shedding offices. And there will be new space coming online at the World Trade Center.
“Shadow space is difficult to determine, but any way you slice it, it is a significant factor in the recovery,” said Benjamin F. Kursman, a partner at the law firm Herrick, Feinstein who specializes in leasing deals. “Even as we see some green shoots in the economy, this is definitely going to be a drag on the resurgence of the commercial real estate market.”
Investing Corporate Cash May Be More Risky
Moving corporate cash to boost returns by a basis point or two could earn a CFO or treasurer a well-deserved dressing-down. But that doesn't mean that finance executives who manage growing pools of idle cash can stand pat with their current investing strategies. Safety and liquidity require constant vigilance — maybe even more so this year.
Big changes on the regulatory front, for example, could affect the returns of money-market funds and create opportunities for corporate investors to earn a bump in yield. And the Fed's market support is slowly ending, which may force companies to reposition money to maintain a government guarantee on cash accounts.
In a climate of historically low interest rates and fresh memories of the financial crisis, however, making any sort of change to your cash-management strategy can seem downright heretical. "My concern is that an investment is safe and liquid," says Katy Murray, finance chief of Taleo, a talent-management software firm that generated $50 million in cash last year. "The interest income off of cash hardly moves the needle anymore."
Money-market funds are Taleo's instrument of choice, and in fact they are one of the few areas of investment that have been largely rehabilitated. Since the collapse of the Reserve Primary Fund in September 2008, money funds have partially regained their reputations as a safe haven for principal preservation.
Money funds suit treasurers who don't want the hassle of doing instrument-level credit research and administration, says Peter Yi, director of money markets in the fixed-income group at Northern Trust. Further, "although you do get competitive yield, you also get liquidity the same day." As of mid-April, however, that competitive yield averaged less than 0.1%.
While liquidity plus a marginal gain brings some comfort, treasurers still need to perform due diligence on money-market funds and monitor them as frequently as weekly, says Matt Clay, head of commingled funds at Clearwater Analytics, maker of a portfolio reporting tool. Clearwater's clients, for example, dig into a fund's asset mix, portfolio duration, and credit exposure to the fund's parent or guarantor.
The Securities and Exchange Commission's new 2a-7 rules could help here. Starting October 7, money-market funds will have to disclose portfolio holdings on their Websites. They will also have to file a form on Edgar that gives the market-based values of each security and the entire fund.
Investors are pulling out of money-market funds en masse.
That will be useful, because there is still a big difference in risk across the money-fund universe, says Lance Pan, director of investment research at Capital Advisors Group. "In theory, all of these funds would have been scrubbed and scrubbed again," Pan says. "But we see big disparities." Some funds have reduced the weighted average life of their investments to 12 days (the maximum allowed is 120), for example, and others are overweighted, perhaps unadvisedly, in things like municipal securities and repurchase agreements.
Ken Grogan, manager of treasury services at Wakefern Food Corp., a cooperative of companies that own and operate ShopRite supermarkets, says Wakefern's money-market investments are highly diversified, both among fund types and fund families. "Look at what happened with the Reserve Primary Fund," Grogan notes. "When the Primary Fund broke the buck [dropped below $1 per share], there was a run on the Reserve U.S. Government Fund and it became illiquid."
To read rest of article-http://www.cfo.com/article.cfm/14493229/c_14493389?f=magazine_alsoinside
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Big changes on the regulatory front, for example, could affect the returns of money-market funds and create opportunities for corporate investors to earn a bump in yield. And the Fed's market support is slowly ending, which may force companies to reposition money to maintain a government guarantee on cash accounts.
In a climate of historically low interest rates and fresh memories of the financial crisis, however, making any sort of change to your cash-management strategy can seem downright heretical. "My concern is that an investment is safe and liquid," says Katy Murray, finance chief of Taleo, a talent-management software firm that generated $50 million in cash last year. "The interest income off of cash hardly moves the needle anymore."
Money-market funds are Taleo's instrument of choice, and in fact they are one of the few areas of investment that have been largely rehabilitated. Since the collapse of the Reserve Primary Fund in September 2008, money funds have partially regained their reputations as a safe haven for principal preservation.
Money funds suit treasurers who don't want the hassle of doing instrument-level credit research and administration, says Peter Yi, director of money markets in the fixed-income group at Northern Trust. Further, "although you do get competitive yield, you also get liquidity the same day." As of mid-April, however, that competitive yield averaged less than 0.1%.
While liquidity plus a marginal gain brings some comfort, treasurers still need to perform due diligence on money-market funds and monitor them as frequently as weekly, says Matt Clay, head of commingled funds at Clearwater Analytics, maker of a portfolio reporting tool. Clearwater's clients, for example, dig into a fund's asset mix, portfolio duration, and credit exposure to the fund's parent or guarantor.
The Securities and Exchange Commission's new 2a-7 rules could help here. Starting October 7, money-market funds will have to disclose portfolio holdings on their Websites. They will also have to file a form on Edgar that gives the market-based values of each security and the entire fund.
Investors are pulling out of money-market funds en masse.
That will be useful, because there is still a big difference in risk across the money-fund universe, says Lance Pan, director of investment research at Capital Advisors Group. "In theory, all of these funds would have been scrubbed and scrubbed again," Pan says. "But we see big disparities." Some funds have reduced the weighted average life of their investments to 12 days (the maximum allowed is 120), for example, and others are overweighted, perhaps unadvisedly, in things like municipal securities and repurchase agreements.
Ken Grogan, manager of treasury services at Wakefern Food Corp., a cooperative of companies that own and operate ShopRite supermarkets, says Wakefern's money-market investments are highly diversified, both among fund types and fund families. "Look at what happened with the Reserve Primary Fund," Grogan notes. "When the Primary Fund broke the buck [dropped below $1 per share], there was a run on the Reserve U.S. Government Fund and it became illiquid."
To read rest of article-http://www.cfo.com/article.cfm/14493229/c_14493389?f=magazine_alsoinside
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Costco Earning Rise by 46%- Are Consumers Back Shopping?
Costco Wholesale Corp.'s (COST) fiscal third-quarter earnings rose by nearly half as the nation's largest wholesale-style retailer saw increased demand for discretionary products and strong international sales.
Costco's comparable-store sales rose 10%, reflecting growth rates of 6% in the U.S. and 26% internationally. Excluding the impact of gasoline sales and a stronger dollar, quarterly same-store sales would have risen 4%, the Issaquah, Wash.-based retailer said.
Consumers in the U.S. purchased deli, frozen and fresh foods and other consumables, but they also spent beyond basics for discretionary merchandise such as small appliances and housewares. International markets, about a quarter of Costco's overall sales, continued to outpace demand in the U.S. as the company expands in markets such as Taiwan and Australia.
There was concern coming into the report that Costco wouldn't fare well, given its recent run of poorer-than-expected performances. But analysts said the retailer gained from a resurgence of buying by consumers who, while still cautious, are more willing to buy discretionary items. Costco benefited from not having to pull down prices in order to book sales during the quarter, and also planned its merchandise mix well, analysts said. Total inventory grew only 5.1% from a year ago, while revenue increased 12.3%.
For the quarter ended May 9, Costco posted a profit of $306 million, or 68 cents a share, up from $210 million, or 48 cents a share, a year earlier. Total revenue increased to $17.78 billion. Analysts polled by Thomson Reuters most recently estimated earnings of 66 cents and $17.6 billion in revenue.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Costco's comparable-store sales rose 10%, reflecting growth rates of 6% in the U.S. and 26% internationally. Excluding the impact of gasoline sales and a stronger dollar, quarterly same-store sales would have risen 4%, the Issaquah, Wash.-based retailer said.
Consumers in the U.S. purchased deli, frozen and fresh foods and other consumables, but they also spent beyond basics for discretionary merchandise such as small appliances and housewares. International markets, about a quarter of Costco's overall sales, continued to outpace demand in the U.S. as the company expands in markets such as Taiwan and Australia.
There was concern coming into the report that Costco wouldn't fare well, given its recent run of poorer-than-expected performances. But analysts said the retailer gained from a resurgence of buying by consumers who, while still cautious, are more willing to buy discretionary items. Costco benefited from not having to pull down prices in order to book sales during the quarter, and also planned its merchandise mix well, analysts said. Total inventory grew only 5.1% from a year ago, while revenue increased 12.3%.
For the quarter ended May 9, Costco posted a profit of $306 million, or 68 cents a share, up from $210 million, or 48 cents a share, a year earlier. Total revenue increased to $17.78 billion. Analysts polled by Thomson Reuters most recently estimated earnings of 66 cents and $17.6 billion in revenue.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Two of the Top 5 Banks On Forbes List Are From Kansas
As reported in USA Today
KANSAS CITY, Mo. — On a shelf near his computer monitors, UMB Financial CEO J. Mariner Kemper keeps a small bottle of amber cologne. It smells horrible, honestly, but that doesn't matter. He rarely opens it.
The cologne was made by a customer in the 1950s, who took a substantial loan to start a line of men's scents. He quickly failed, and the bank's collateral included a warehouse full of the worthless bottles. The bank, then run by Kemper's grandfather, gave them out as Christmas presents.
The bottle is a reminder to act conservatively, Kemper says."My father always said you should row close to shore," says Kemper, 37. "I've taken that to mean in everything we do, we need to manage the risks. ... Never do something that could take the whole business down."
Sticking to its conservative approach earned Kansas City, Mo.-based UMB the No. 2 spot, behind Bank of Hawaii, on Forbes magazine's rating at the end of 2009 of the 100 largest U.S. banks from best to worst.
Cross-state rival Commerce Bank, with headquarters in St. Louis and Kansas City, followed a similar strategy, landing itself at No. 3 on the Forbes list."There's something in the water here," he says.It also could be the genes. Commerce's CEO is Kemper's cousin, David Kemper.
For Complete article please visit -http://www.usatoday.com/money/industries/banking/2010-05-27-kcbanks27_CV_N.htm
Their great-grandfather, W.T. Kemper, had stakes in several banks: Two, through various name changes, became today's UMB and Commerce.
While other banks in the past decade chased profits in subprime mortgages and financial instruments whose risks most people, including the bankers, did not understand, UMB, a regional bank with operations in seven states, and Commerce, which operates in five states, made relatively conservative loans and cautiously managed customers' money.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
KANSAS CITY, Mo. — On a shelf near his computer monitors, UMB Financial CEO J. Mariner Kemper keeps a small bottle of amber cologne. It smells horrible, honestly, but that doesn't matter. He rarely opens it.
The cologne was made by a customer in the 1950s, who took a substantial loan to start a line of men's scents. He quickly failed, and the bank's collateral included a warehouse full of the worthless bottles. The bank, then run by Kemper's grandfather, gave them out as Christmas presents.
The bottle is a reminder to act conservatively, Kemper says."My father always said you should row close to shore," says Kemper, 37. "I've taken that to mean in everything we do, we need to manage the risks. ... Never do something that could take the whole business down."
Sticking to its conservative approach earned Kansas City, Mo.-based UMB the No. 2 spot, behind Bank of Hawaii, on Forbes magazine's rating at the end of 2009 of the 100 largest U.S. banks from best to worst.
Cross-state rival Commerce Bank, with headquarters in St. Louis and Kansas City, followed a similar strategy, landing itself at No. 3 on the Forbes list."There's something in the water here," he says.It also could be the genes. Commerce's CEO is Kemper's cousin, David Kemper.
For Complete article please visit -http://www.usatoday.com/money/industries/banking/2010-05-27-kcbanks27_CV_N.htm
Their great-grandfather, W.T. Kemper, had stakes in several banks: Two, through various name changes, became today's UMB and Commerce.
While other banks in the past decade chased profits in subprime mortgages and financial instruments whose risks most people, including the bankers, did not understand, UMB, a regional bank with operations in seven states, and Commerce, which operates in five states, made relatively conservative loans and cautiously managed customers' money.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Wednesday, May 26, 2010
Harvard Business Review- M&A Complexity
Have you ever worked for a company that's acquired another, or that's been acquired? Given the worldwide volume of M&A activity, most managers would answer "yes" to that question. In 2009 alone, despite the recession and the credit crunch, 5,800 deals were announced, worth $2.3 trillion — and that was the lowest volume of M&A activity since 2004! Volume in 2010 is already significantly higher, with predictions that by the end of the year it will rise over 30%. Just in the last few weeks deals were announced by United Airlines (merging with Continental); GS Capital (buying Michael Foods); Abbott Labs (buying Piramal Healthcare); and dozens of others. In other words, no matter what the state of the economy, companies continue to merge and acquire as a pathway to growth and (hopefully) increased shareholder value.
One of the keys to creating value from an acquisition is to integrate the two companies in a way that makes it easy for people to do business both internally and with customers. But making that happen is easier said than done. Studies by various consulting firms and universities suggest that only 30% of completed M&A transactions actually pay off as expected — and one of the reasons is that too often the integration process creates complexity instead of simplicity.
http://blogs.hbr.org/ashkenas/2010/05/are-your-acquisitions-creating.html
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
One of the keys to creating value from an acquisition is to integrate the two companies in a way that makes it easy for people to do business both internally and with customers. But making that happen is easier said than done. Studies by various consulting firms and universities suggest that only 30% of completed M&A transactions actually pay off as expected — and one of the reasons is that too often the integration process creates complexity instead of simplicity.
http://blogs.hbr.org/ashkenas/2010/05/are-your-acquisitions-creating.html
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Real Estate Funds Returning Money to Investors
As reported in the Wall Street Journal
"Some real-estate funds, which raised billions of dollars hoping to pounce on bargain properties, are returning money to investors after finding slim pickings, as many banks avoid dumping property by extending and restructuring loans.
A slew of private-equity funds, including ones run by Morgan Stanley, Rockpoint Group LLC and Chicago developer John Buck's firm, have taken the unusual step of allowing investors to exit their funding commitments when the funds' investment period expired. A total of 19 private-equity real-estate funds have either returned or plan to return more than $6 billion of capital to investors, said Real Estate Alert,read rest of article at www.wsjonline.com
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
"Some real-estate funds, which raised billions of dollars hoping to pounce on bargain properties, are returning money to investors after finding slim pickings, as many banks avoid dumping property by extending and restructuring loans.
A slew of private-equity funds, including ones run by Morgan Stanley, Rockpoint Group LLC and Chicago developer John Buck's firm, have taken the unusual step of allowing investors to exit their funding commitments when the funds' investment period expired. A total of 19 private-equity real-estate funds have either returned or plan to return more than $6 billion of capital to investors, said Real Estate Alert,read rest of article at www.wsjonline.com
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
IASB Chairman Outlines Approach for Reconciling IASB and FASB
International Accounting Standards Board Chairman Sir David Tweedie on Tuesday outlined a possible approach for reconciling the divergent IASB and FASB models for financial instruments accounting. With FASB’s comprehensive exposure draft on financial instruments expected any day, Tweedie said during a JofA exclusive interview at the AICPA Council meeting in San Diego that public comments on the boards’ proposals will play a key role in getting their two approaches closer together.
Speaking later to the AICPA Governing Council, Tweedie thanked the AICPA for its longstanding support of the IASB even before international standards were popular. To understand Tweedie’s approach to fixing the financial instruments problem requires some background on where the standards setters diverged. As a result of the subprime mortgage collapse, accounting for loans and securities derived from loans was widely criticized. When the financial crisis started in 2008, this project was already on the active agendas of both standard setters, but the crisis put enormous political pressure on the IASB and FASB to improve their standards as soon as possible.
In a move that was not followed by FASB, the IASB split its project to replace IAS 39, Financial Instruments: Recognition and Measurement, into three parts to deal separately with classification and measurement; impairment; and hedging. FASB decided to deal with all three aspects of financial instruments in a single project and plans to issue its comprehensive exposure draft by the end of this month. Despite intense joint deliberations, FASB and the IASB were unable to agree on a common approach for classification and measurement. The IASB published its approach on Nov. 12, 2009, with the release of IFRS 9, Financial Instruments. IFRS 9 may be adopted early but is not effective until Jan. 1, 2013.
Under what is expected to be the proposed FASB model:
Under the IASB model (IFRS 9):
To read the complete coverage please visit http://www.journalofaccountancy.com/Web/20102960.htm
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Speaking later to the AICPA Governing Council, Tweedie thanked the AICPA for its longstanding support of the IASB even before international standards were popular. To understand Tweedie’s approach to fixing the financial instruments problem requires some background on where the standards setters diverged. As a result of the subprime mortgage collapse, accounting for loans and securities derived from loans was widely criticized. When the financial crisis started in 2008, this project was already on the active agendas of both standard setters, but the crisis put enormous political pressure on the IASB and FASB to improve their standards as soon as possible.
In a move that was not followed by FASB, the IASB split its project to replace IAS 39, Financial Instruments: Recognition and Measurement, into three parts to deal separately with classification and measurement; impairment; and hedging. FASB decided to deal with all three aspects of financial instruments in a single project and plans to issue its comprehensive exposure draft by the end of this month. Despite intense joint deliberations, FASB and the IASB were unable to agree on a common approach for classification and measurement. The IASB published its approach on Nov. 12, 2009, with the release of IFRS 9, Financial Instruments. IFRS 9 may be adopted early but is not effective until Jan. 1, 2013.
Under what is expected to be the proposed FASB model:
- Most instruments would be measured on the statement of financial position at fair value with changes in fair value reflected in net income, or net income and other comprehensive income;
- A limited amortized cost option would be available for financial liabilities; and
- No reclassification would be permitted between categories.
Under the IASB model (IFRS 9):
- The scope of the standard is limited to assets only;
- Amortized cost is used when it matches the entity’s business model and cash flow characteristics of the asset;
- Fair value is used for equity instruments, most derivatives and some hybrid instruments; and
- Bifurcation of embedded derivatives is not permitted.
To read the complete coverage please visit http://www.journalofaccountancy.com/Web/20102960.htm
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Tuesday, May 25, 2010
New CFO At Avery Dennison
Avery Dennison Corporation (NYSE:AVY) today announced the promotion of Mitchell R. Butier to senior vice president and chief financial officer, effective June 1.
Butier has been the Company's corporate vice president, global finance, and chief accounting officer since March, 2007. He succeeds Daniel R. O'Bryant, who has been elected executive vice president, business development, in which role he will contribute to the identification and implementation of growth opportunities.
Vice President and Controller Lori J. Bondar will succeed Butier as the Company's chief accounting officer.
"Mitch is a seasoned finance executive and a strong leader, and the Board of Directors and I are delighted to welcome him to the CFO role," said Dean A.
Scarborough, Avery Dennison chairman, president and CEO. "He has served in senior finance roles in all of our major businesses and in the United States and Europe, and is already a member of the Company's Corporate Leadership Team. His promotion is the logical next step in our succession plans.
"Consistent with those plans, Dan is returning to operations, where he will continue to make significant contributions to Avery Dennison's profitable growth," Scarborough said. "He is a great strategic executive and an invaluable asset to the Company." Butier joined Avery Dennison in 2000 from PricewaterhouseCoopers. Prior to 2007 he served in finance leadership roles in the Company's Roll Materials, Retail Information Services and Office Products businesses, and in general management positions in Retail Information Services. He earned a B.S.A. at Loyola Marymount University.
O'Bryant's 20-year career with Avery Dennison includes senior operations and finance roles in its Roll Materials and Specialty Tape businesses, including four years in operating leadership roles at Fasson Roll North America. He was elected senior vice president and chief financial officer of Avery Dennison in January, 2001, and executive vice president and chief financial officer in 2005.
Lori Bondar joined Avery Dennison in April, 2008 as vice president and controller. Her 25-year career includes executive positions in finance, risk management and strategic planning at public companies.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Butier has been the Company's corporate vice president, global finance, and chief accounting officer since March, 2007. He succeeds Daniel R. O'Bryant, who has been elected executive vice president, business development, in which role he will contribute to the identification and implementation of growth opportunities.
Vice President and Controller Lori J. Bondar will succeed Butier as the Company's chief accounting officer.
"Mitch is a seasoned finance executive and a strong leader, and the Board of Directors and I are delighted to welcome him to the CFO role," said Dean A.
Scarborough, Avery Dennison chairman, president and CEO. "He has served in senior finance roles in all of our major businesses and in the United States and Europe, and is already a member of the Company's Corporate Leadership Team. His promotion is the logical next step in our succession plans.
"Consistent with those plans, Dan is returning to operations, where he will continue to make significant contributions to Avery Dennison's profitable growth," Scarborough said. "He is a great strategic executive and an invaluable asset to the Company." Butier joined Avery Dennison in 2000 from PricewaterhouseCoopers. Prior to 2007 he served in finance leadership roles in the Company's Roll Materials, Retail Information Services and Office Products businesses, and in general management positions in Retail Information Services. He earned a B.S.A. at Loyola Marymount University.
O'Bryant's 20-year career with Avery Dennison includes senior operations and finance roles in its Roll Materials and Specialty Tape businesses, including four years in operating leadership roles at Fasson Roll North America. He was elected senior vice president and chief financial officer of Avery Dennison in January, 2001, and executive vice president and chief financial officer in 2005.
Lori Bondar joined Avery Dennison in April, 2008 as vice president and controller. Her 25-year career includes executive positions in finance, risk management and strategic planning at public companies.
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
WSJ Reports Legg Mason To Buy Back $300 Million in Stock
Legg Mason Inc. (LM) has agreed to buy back $300 million of stock in accelerated share-repurchase deals, part of its $1 billion effort announced two weeks ago.A host of companies have been ramping up buyback efforts in recent months as the perceived need to hoard cash in the wake of the financial crisis recedes. Legg Mason's market value is slightly less than $5 billion.The money manager, when it announced the buyback effort, reported it swung to a fiscal fourth-quarter profit following a prior-year charge as the company said it will cut about 10% of its 3,500-person work force through back-office streamlining.
Shares were up 1% at $30.44 in early trading. The stock is up 64% the past year.
Shares were up 1% at $30.44 in early trading. The stock is up 64% the past year.
Cellphone Companies Need to Revisit Retail Strategy
The costs required to maintain thousands of retail locations is daunting. As reported in the WSJ article, " Dan Hays, a partner with consulting firm PRTM, estimates major carriers' retail stores cost about $500,000 a year to operate each. For AT&T and Verizon Wireless, that adds up to about $1.1 billion annually or 1.7% of 2009 revenue for Verizon Wireless, for instance."
Reducing Retail Locations Greatly Improves Bottom Line
During the divestiture of the Bell Companies- Bell Atlantic found itself with what seemed like a no- win scenario. They had to close or sublease forty branch locations quickly. With cash reserves dwindling, subleasing was no longer an option. David Worrell, Director of Real Estate/Finance of a Bell Atlantic subsidiary, developed a new concept- Negotiated Lease Buyout of Real Estate Leases. Using this strategy he was able to end all of their lease obligations in seven months with an average savings of 68% per lease. He left Bell Atlantic to form Cambridge Consulting Group to help other companies achieve similar results. Cambridge Consulting Group has helped major organizations including Bank Of America, Ford Motor Credit and Key Corp save millions of dollars on their un-needed commercial real estate costs. For more information please visit his website at www.ccgiweb.com.
CFOs Getting Answers on Health Care Reform
The Wall Street Journal reported today that Campbell Soup earnings fell 3.4% some of it related to absorbing new health care reform costs. CFO Magazine article below discusses how CFOs are reacting to new changes.
By Alix Stuart
Piece by piece, CFOs are getting a clearer understanding of how health-care reform will affect their costs. According to a recent survey by Mercer, 41% of companies expect to see their annual costs increase by 2% or less when the Patient Protection and Affordable Care Act's most immediate provisions — expanded dependent coverage and the end of lifetime coverage limits — take effect next year. Another 25% expect the provisions to add 3% or more to the tab, while a fortunate 3% expect no changes as a result of the required benefits enrichment. (Thirty percent are still unable to tally the additional costs.)
One component of those cost increases will come from the PPACA's mandate to extend coverage to older children of employees. New interim rules from the Departments of Health and Human Services, Labor, and the Treasury recently clarified that companies providing health insurance must offer the coverage to those age 26 or under in new plan years starting on or after September 23, 2010. They also made it apparent that implementing even one of the less-controversial provisions of the bill will not be easy work.
For full article-http://www.cfo.com/article.cfm/14500415/?f=rsspage
Subleasing Unused Space Not A Wise Cost Containment Strategy
Cost containment is still the key trend for companies in 2010. One of the largest cost areas is real estate leased by corporations. Long term leases tie up capital that could be used to fund other corporate activities. Many companies have downsized and have commercial real estate space they are not using. Landlords are facing many financial obstacles and may be more willing to renegotiate or release your firm from any future payments. Corporations can save millions of dollars in saved lease payments by using a newer strategy- Negotiated Lease Buyout. For more information please visit www.commercialleaseterminations.com
By Alix Stuart
Piece by piece, CFOs are getting a clearer understanding of how health-care reform will affect their costs. According to a recent survey by Mercer, 41% of companies expect to see their annual costs increase by 2% or less when the Patient Protection and Affordable Care Act's most immediate provisions — expanded dependent coverage and the end of lifetime coverage limits — take effect next year. Another 25% expect the provisions to add 3% or more to the tab, while a fortunate 3% expect no changes as a result of the required benefits enrichment. (Thirty percent are still unable to tally the additional costs.)
One component of those cost increases will come from the PPACA's mandate to extend coverage to older children of employees. New interim rules from the Departments of Health and Human Services, Labor, and the Treasury recently clarified that companies providing health insurance must offer the coverage to those age 26 or under in new plan years starting on or after September 23, 2010. They also made it apparent that implementing even one of the less-controversial provisions of the bill will not be easy work.
For full article-http://www.cfo.com/article.cfm/14500415/?f=rsspage
Subleasing Unused Space Not A Wise Cost Containment Strategy
Cost containment is still the key trend for companies in 2010. One of the largest cost areas is real estate leased by corporations. Long term leases tie up capital that could be used to fund other corporate activities. Many companies have downsized and have commercial real estate space they are not using. Landlords are facing many financial obstacles and may be more willing to renegotiate or release your firm from any future payments. Corporations can save millions of dollars in saved lease payments by using a newer strategy- Negotiated Lease Buyout. For more information please visit www.commercialleaseterminations.com
Wednesday, May 19, 2010
New Accounting Rules Effect Subleasing decisions
The Financial Accounting Standards Board (FASB) and
the International Accounting Standards Board (IASB)
are working together to create a common standard
on lease accounting to ensure that the assets and
liabilities arising from lease contracts are recorded and
recognized on the financial statements in a consistent
manner. Under the current regulations, similar
transactions can be accounted for very differently,
reducing both the transparency and comparability for
users of financial statements.
Many industries utilize leasing as an important source
of finance to the business. The proposed lease
accounting standard would require that all operating
leases be treated as capital leases and that assets and
liabilities arising from lease contracts are recognized
on the balance sheet as a “Right of Use”1 asset and
an obligation. It has been estimated that this change
could add over $1 trillion onto U.S. company balance
sheets2 in increased assets and liabilities. The proposed
standard, if adopted, will impact all publicly traded
companies and all companies who produce financial
statements in accordance with Generally Accepted
Accounting Principles (GAAP). While under the
proposed rules, the timing for implementation by
lessees and lessors may differ, eventually both will be
impacted.
The proposed regulations are expected to be
adopted in 2011, but [at the time of publication of this
document] timing on implementation is uncertain.
Once implemented, accounting for leases from the
lessee and lessor perspective, financial reporting for the
commercial real estate industry, as well as any industry
where leasing is utilized, will change.
The purpose of this White Paper is to illustrate the
potential impact on the Lessee’s or Lessor’s
Under the proposed standard, accounting for subleases
will most likely change for both the lessor and lessee.
There are three methods currently under consideration
for lessor sublease accounting, but the FASB and IASB
have not reached a preliminary view on any of the
approaches:
(1) Continue to use existing lessor accounting
standards to subleases but provide additional
guidance.
(2) Exclude the lessor sublease from the scope of the
proposed standard.
(3) Develop a right-of-use model to deal strictly with
subleases.
All three of the suggested approaches have advantages
and disadvantages which will be addressed as the FASB
and IASB consider issuing a new standard to account for
the International Accounting Standards Board (IASB)
are working together to create a common standard
on lease accounting to ensure that the assets and
liabilities arising from lease contracts are recorded and
recognized on the financial statements in a consistent
manner. Under the current regulations, similar
transactions can be accounted for very differently,
reducing both the transparency and comparability for
users of financial statements.
Many industries utilize leasing as an important source
of finance to the business. The proposed lease
accounting standard would require that all operating
leases be treated as capital leases and that assets and
liabilities arising from lease contracts are recognized
on the balance sheet as a “Right of Use”1 asset and
an obligation. It has been estimated that this change
could add over $1 trillion onto U.S. company balance
sheets2 in increased assets and liabilities. The proposed
standard, if adopted, will impact all publicly traded
companies and all companies who produce financial
statements in accordance with Generally Accepted
Accounting Principles (GAAP). While under the
proposed rules, the timing for implementation by
lessees and lessors may differ, eventually both will be
impacted.
The proposed regulations are expected to be
adopted in 2011, but [at the time of publication of this
document] timing on implementation is uncertain.
Once implemented, accounting for leases from the
lessee and lessor perspective, financial reporting for the
commercial real estate industry, as well as any industry
where leasing is utilized, will change.
The purpose of this White Paper is to illustrate the
potential impact on the Lessee’s or Lessor’s
Under the proposed standard, accounting for subleases
will most likely change for both the lessor and lessee.
There are three methods currently under consideration
for lessor sublease accounting, but the FASB and IASB
have not reached a preliminary view on any of the
approaches:
(1) Continue to use existing lessor accounting
standards to subleases but provide additional
guidance.
(2) Exclude the lessor sublease from the scope of the
proposed standard.
(3) Develop a right-of-use model to deal strictly with
subleases.
All three of the suggested approaches have advantages
and disadvantages which will be addressed as the FASB
and IASB consider issuing a new standard to account for
Monday, May 17, 2010
TD Bank Acquires Struggling South Financial Bank
Canada's TD Bank (TD) agreed to buy South Financial (TSFG), a struggling Greenville, S.C.-based bank holding company with $12 billion in assets and 176 branches in the Carolinas and Florida.
TD buys the dip
Toronto-based TD, which previously purchased the Commerce Bank chain in the mid-Atlantic states and owns the TD Ameritrade online broker, said the deal is just the sort of transaction it has been searching for as it expands on the U.S. East Coast.
"We're gaining established commercial banking assets and a solid network of stores in attractive and growing markets within our Maine-to-Florida footprint," said TD Bank chief Ed Clark.
The deal also comes just weeks after South Financial promised to raise capital in a consent agreement with regulators at the Federal Reserve. The terms strongly suggest the clock was ticking for South Financial to find a buyer.
TD will pay just $61 million, or 28 cents a share, to acquire South Financial's stock. That's less than half the price the stock fetched Friday.
http://wallstreet.blogs.fortune.cnn.com/2010/05/17/fdic-scores-in-td-deal/
by Colin Barr
TD buys the dip
Toronto-based TD, which previously purchased the Commerce Bank chain in the mid-Atlantic states and owns the TD Ameritrade online broker, said the deal is just the sort of transaction it has been searching for as it expands on the U.S. East Coast.
"We're gaining established commercial banking assets and a solid network of stores in attractive and growing markets within our Maine-to-Florida footprint," said TD Bank chief Ed Clark.
The deal also comes just weeks after South Financial promised to raise capital in a consent agreement with regulators at the Federal Reserve. The terms strongly suggest the clock was ticking for South Financial to find a buyer.
TD will pay just $61 million, or 28 cents a share, to acquire South Financial's stock. That's less than half the price the stock fetched Friday.
http://wallstreet.blogs.fortune.cnn.com/2010/05/17/fdic-scores-in-td-deal/
by Colin Barr
Capital One Announces New President To Oversee Chevy Chase Bank Acquisition
The ubiquitous Chevy Chase Bank signs will be replaced in the fall by the Capital One name, the McLean-based institution said Friday as it announced a new mid-Atlantic president and several new officers in the Washington area.
The bank appointed a new team led by James Jackson to oversee the mid-Atlantic region and integrate the recently acquired Chevy Chase branches into its operations. He replaces longtime Chevy Chase executive Pat Clancy, who will serve in an advisory role as Capital One completes its takeover. A bank spokeswoman said the 247 Chevy Chase branches in the Washington region will be officially rebranded "Capital One" in the fall.
"Contractors are in the process of preparing the internal and external signage replacement in Chevy Chase Bank branches throughout the Mid-Atlantic by installing permanent Capital One Bank signs with temporary Chevy Chase Bank covers," spokeswoman Denise Kazmier said in a statement. "The temporary covers are scheduled to be removed in the fall during the brand change."
Kazmier said Capital One plans to introduce new products to the banks, but still "preserve the unique feel" of Chevy Chase.
In purchasing Chevy Chase in early 2009, Capital One is moving further with its strategy to expand from its credit card business into commercial banking. Its initial forays into commercial banking, involving the North Fork and Hibernia purchases, was rocky when several bank executives quit over what they said was Capital One's inability to meld the cultures.
Analysts, though, say Capital One apparently has learned from that experience and opted to move on the recent acquisition at a measured pace.
"They're to be commended for being careful about this. There have been some horror stories back in '90s acquisitions [involving other banks] that went too fast and were disastrous," said Bert Ely, an independent banking consultant.
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"Computer systems didn't match," Ely added. "Customers had interruptions in basic banking -- getting deposits and accessing cash through the ATM."
In its earnings statement last month, Capital One said its Chevy Chase operations performed as expected. In its overall banking segment, average deposits rose 12.6 percent, to $21.9 billion, from 2009's final quarter.
The company said revenue in its domestic and international credit card segments declined.
But total charge-offs, or the unpaid debts that are recorded as losses for the firm, fell in the first quarter from the fourth quarter of 2009 as commercial, auto and retail banking performance improved, the company said. Those gains offset a higher charge-off rate on domestic credit cards.
Jackson, who was not available for comment, will oversee Capital One's banks and its community outreach programs involving philanthropy and employee volunteer programs, according to the company. He also will continue to serve in his previous position as executive vice president of branch distribution.
Before joining Capital One in 2009, Jackson worked for 25 years at Bank of America. Among his last jobs there was overseeing the Southeast region.
Capital One's new market presidents include:
-- Adam Ostrach, the District.
-- John Allen, Prince George's County.
-- Kimberly Conte, Fairfax and Loudoun counties.
-- David Dineen, Montgomery County.
-- Eric Lawrence, Alexandria and Arlington and southern Fairfax counties.
The bank appointed a new team led by James Jackson to oversee the mid-Atlantic region and integrate the recently acquired Chevy Chase branches into its operations. He replaces longtime Chevy Chase executive Pat Clancy, who will serve in an advisory role as Capital One completes its takeover. A bank spokeswoman said the 247 Chevy Chase branches in the Washington region will be officially rebranded "Capital One" in the fall.
"Contractors are in the process of preparing the internal and external signage replacement in Chevy Chase Bank branches throughout the Mid-Atlantic by installing permanent Capital One Bank signs with temporary Chevy Chase Bank covers," spokeswoman Denise Kazmier said in a statement. "The temporary covers are scheduled to be removed in the fall during the brand change."
Kazmier said Capital One plans to introduce new products to the banks, but still "preserve the unique feel" of Chevy Chase.
In purchasing Chevy Chase in early 2009, Capital One is moving further with its strategy to expand from its credit card business into commercial banking. Its initial forays into commercial banking, involving the North Fork and Hibernia purchases, was rocky when several bank executives quit over what they said was Capital One's inability to meld the cultures.
Analysts, though, say Capital One apparently has learned from that experience and opted to move on the recent acquisition at a measured pace.
"They're to be commended for being careful about this. There have been some horror stories back in '90s acquisitions [involving other banks] that went too fast and were disastrous," said Bert Ely, an independent banking consultant.
ad_icon
"Computer systems didn't match," Ely added. "Customers had interruptions in basic banking -- getting deposits and accessing cash through the ATM."
In its earnings statement last month, Capital One said its Chevy Chase operations performed as expected. In its overall banking segment, average deposits rose 12.6 percent, to $21.9 billion, from 2009's final quarter.
The company said revenue in its domestic and international credit card segments declined.
But total charge-offs, or the unpaid debts that are recorded as losses for the firm, fell in the first quarter from the fourth quarter of 2009 as commercial, auto and retail banking performance improved, the company said. Those gains offset a higher charge-off rate on domestic credit cards.
Jackson, who was not available for comment, will oversee Capital One's banks and its community outreach programs involving philanthropy and employee volunteer programs, according to the company. He also will continue to serve in his previous position as executive vice president of branch distribution.
Before joining Capital One in 2009, Jackson worked for 25 years at Bank of America. Among his last jobs there was overseeing the Southeast region.
Capital One's new market presidents include:
-- Adam Ostrach, the District.
-- John Allen, Prince George's County.
-- Kimberly Conte, Fairfax and Loudoun counties.
-- David Dineen, Montgomery County.
-- Eric Lawrence, Alexandria and Arlington and southern Fairfax counties.
North American Financial Holdings Inc. May be Large Purchaser of Southern Banks
Jacksonville Business Journal - April 12, 2010
/jacksonville/stories/2010/04/12/story1.html
A group of heavyweights in national banking circles could form a bank in Jacksonville by using more than $500 million in capital to buy up failed banks.
The group seeking to form a national bank charter in Jacksonville already has about $528 million in cash, and includes former top executives from Bank of America Corp., an adviser to GMAC LLC and NASA, a managing director at Morgan Stanley and a retired partner of Goldman Sachs & Co., according to the application filed with the Office of the Comptroller of the Currency, a national banking regulator.
The bank holding company, called North American Financial Holdings Inc., could eventually create a multibillion-dollar bank under the proposed name of NAFH National Bank, by acquiring multiple failed banks throughout the Southeast, analysts said.
“This group is experienced in building big banks and there are big bucks behind this group,” said Tony Plath, finance professor at the University of North Carolina at Charlotte.
The proposed board of directors and top executives of the company are mostly former Bank of America heavy-hitters such as Eugene Taylor, whose 38 years at the company included his most recent positions as vice chairman of Bank of America and president of Global Corporate and Investment Banking, and Bruce Singletary, who was senior risk manager of commercial banking for Bank of America’s Florida Bank during his 31 years with the company.
Taylor will be the chairman and CEO of the bank and company, and Singletary will be the chief risk officer, according to its application. Christopher Marshall, who will be the chief financial officer, was a senior adviser to GMAC LLC’s CEO in helping the company restructure, including leading the efforts to cut $1 billion in expenses to get the auto lender giant back on its feet. Marshall was also an adviser in banking sector investments for The Blackstone Group LP, chief financial officer for Fifth Third Bancorp and, before spending five years with Bank of America, he was an adviser to NASA and the chief financial officer of AlliedSignal Technical Services Corp.
None of the principals could be reached for comment.
While there have been reports of former bankers forming groups to buy failed banks, Plath said he had not seen a group of this caliber yet.
“This is far more horsepower than what you would typically see,” Plath said.
As of Dec. 22, the company had $528 million in cash capital. The application stated NAFH National Bank would form “to acquire certain assets and assume certain liabilities of one or more failed depository institutions.”
With half a billion in capital, “they could purchase a pretty good size bank or several smaller banks,” said Stan Smith, finance professor at the University of Central Florida. Smith said that amount of capital could allow them to buy a bank with $2 billion to $5 billion in assets.
The fact that NAFH is seeking a national charter with the Office of the Comptroller of the Currency means that it will be easier for the bank to branch out throughout the Southeast, Plath said. “This is a super regional franchise” that will “likely be in the tens of billions of dollars.”
The portions of the applications made public based on a Freedom of Information Act Request by The Business Journal do not indicate where the bank’s target markets are or where the holding company will be based. However, the Comptroller’s Web site, which listed the application, stated that the proposed corporate and mailing addresses were in Jacksonville at the time it was filed in January.
Analysts said it is likely the acquisitions will start in Florida and Georgia, where banking was historically lucrative and costly. But now those states carry a majority of the failed banks selling for cents on the dollar since the Federal Deposit Insurance Corp. typically covers most of the loan loss.
“Florida banking, for the long term, is going to be an excellent outlook,” said Linda Charity, director of the Division of Financial Institutions at the Florida Office of Financial Regulation.
Charity said she is seeing more interest in forming banks throughout the state. There is also a pending application with her office by a group of national bank veterans and former regulators to form a bank in Ponte Vedra called Bank of the Southeast, which will form to buy failed banks.
Another group primarily of veteran bankers who formed a private equity group, Bond Street Holdings LLC, raised $440 million last year. Bond Street, which bought two failed banks in Florida in January, was among the first private equity groups to acquire failed banks in this recession.
Charity said she is also seeing more experienced groups flush with cash seeking to acquire a failed bank or support a distressed one.
“A year ago people were kicking tires, but there was not enough backing,” she said. “Now, it’s a different time.”
Last May, three New York private equity firms including Fortress Investment Group LLC, where Eugene Taylor was an adviser, had an initial agreement to inject up to $150 million in equity into Boca Raton-based First Southern Bank, owned by First Southern Bancorp Inc. Had the deal gone through, Taylor would have been chairman and CEO of First Southern. But the bank announced in February that it raised $400 million in capital through 25 institutional investors, naming a different former bank president as chairman and CEO.
North American Financial Holdings must get the green light from three regulators before it can begin: the Office of the Comptroller of the Currency to form a national bank, the FDIC to insure deposits and the Federal Reserve to become a bank holding company. The application filed with the Office of the Comptroller is called a shelf charter, which means the regulators will not approve it until the company bids on a failed bank and it’s approved by the regulators.
It is clear that this kind of group and capital backing “puts them in a nice competitive position,” said Jack Greeley, a banking attorney at Smith MacKinnon PA in Orlando. “It’s done in a way that makes a regulatory-approved deal.”
— Rachel Witkowski -rwitkowski@bizjournals.com | 265-2219
Many bank acquisition deals are based on reducing operating costs and redundancy of services/ branch locations. Reducing the number of bank branches can have a tremendous impact on profits, but only if the real estate leases are subleased or terminated. There are many advantages to a negotiated lease buy-out rather than the more risky sub-leasing option. One company, Cambridge Consulting has perfected the art of Negotiated Lease Buy-outs. They have saved organizations like Bank Of America and Ford Credit millions of dollars in reduced real estate obligations. For more information please visit their website- www.commercialleaseterminations.com
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