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September 2010 Newsletter


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September 2010 Newsletter

  1. 1. Nason & Nason September 16, 2010 Nason Temp Solutions Fall is upon us, back to school, football and more football, and hope springs eternal with the Dolphins having won their first game. Not so on the economic side - with the first quarter's 3.7% growth now fading into memory and a prolonged recession an unfortunate possibility. What happened? Lots of moving and complex parts. Here are a couple of thoughts on some things that have had an immediate impact on our banking and business communities, and an attempt to "connect the dots." Banking Bill Is Quashing Recovery Unintended consequences of the Dodd-Frank Financial Reform Act will take months, if not years, to straighten out. In its haste to punish "Wall Street" Congress rushed through a bill that may not have effectively addressed the practices of a few giant financial institutions that triggered much of the disruption in the market. The result is that all financial institutions will now pay a very high price in terms of additional costs and regulatory burden for the excesses committed by a few huge banks. Many of the rules were already in place prior to the crisis in 2008 but they were not enforced effectively. On the other hand, one worrisome outcome of the new legislation will be a delay in lending and stagnation of job creation, ultimately prolonging the recession. How so and how is this happening?
  2. 2. The new law introduced leverage and capital restrictions which will compel banks to pull back on lending. Simultaneously, it has introduced tighter lending standards especially in real estate. In field regulators have been vigorously enforcing these restrictions even beyond those contained in formal legislation. They are not completely in sync with the legislators and senior policy makers. This has made it even more difficult for small businesses. Since they account for 70% of the job creation in the US, and as they are being shut out of the credit markets, small business is holding back on hiring. So connecting the dots may help to explain why there is talk of a double dip recession. Why hasn't the Fed acted to counter the contraction? They have very few tools to work with in the low interest rate environment. There is no room to lower rates, and if rates rise it will slow any growth. Couple that with the planned record tax increase, which itself will create more contraction, and cooperation with the financial sector becomes critical. They need the banks to begin to lend. This is where the unintended consequences of the Reform Act kick in again creating uncertainty. Top regulators are stymied by the wording on use of private credit ratings. There are no answers on who is going to oversee credit ratings and how. Ratings impact bank capital. That problem is simple compared to the complexities of controlling derivatives, with a face value of 650 trillion dollars. It is required that trading of these instruments be moved to exchanges that don't exist. Who is going to run these exchanges? Which derivatives, standards or synthetic? There has been very little monitoring of derivatives, with limited information, so there is scarce analysis of their real magnitude and the extent of their risks. There are also misconceptions, and is a credit swap a swap, or is it is an insurance policy? What are we going to do with the new monster we have created in consumer protection that will involve a huge bureaucracy to control and the cost for banks will be huge? Compensation is still very much up in the air. End results: uncertainty, less profits, lower capital, less lending, contraction. Questions remain. What was broken and what really needed to be fixed? Was it fixed or even repaired? The impact of the Reform bill will be more wide reaching than the bill itself. US banks will undoubtedly become less competitive. Uncertainty will continue for the near future and when there is uncertainty banks will stand pat and lending will be slow and so will job creation. Not all doom and gloom, but we can hope when the regulations are put into practice for the over 800 changes that will be needed to implement the legislation, they connect the dots and take into account the macro as well as the micro. Comment on this article
  3. 3. Basel Three- Are We Better and Safer? If Congress had focused on the issues addressed by the Basel Conventions, they could have addressed the crux of the financial systems weaknesses in a productive and long term fashion that would have made a positive contribution to Main Street and probably in the long term helped Wall Street as well. Although some financial institutions see Basel Three as a double whammy on top of the other banking legislation passed in the US and other countries, the cooperative spirit in which it was addressed may well have led to solutions not confrontation. Basel Three issued rules that would require banks to bolster the amount of low-risk assets they hold in reserve as a cushion against market shocks. Some 27 nations reached agreement to participate and the new Basel fundamentally tightened leverage and capital requirements that were in place from previous accords. Theoretically more capital and less leverage should make us safer at the expense of bank profitability. Which brings us back to the Dodd-Frank Act. Does it make us better and safer and will it save us from chaos? Comment on this article FATCA at a Critical Stage FATCA (Foreign Account Tax Compliance Act) was passed as an amendment to the HELP jobs bill which basically went unnoticed outside the banking community. It's intention was that US taxpayers pay their taxes as owed and not use deposits, trusts and other shelters to obscure their finances and evade their tax obligations under US law. It imposes vast information reporting on financial institutions, requiring them to identify and disclose US account holders or become subject to a 30 % US withholding tax with respect to any payment of US source income and proceeds from the sale of equity or debt instruments. (See what is included in the Law.) There is little sympathy for tax dodges as most would agree and they should be punished. However to completely disrupt international finance, trade and commerce, and use the international financial system as deputized agents of the IRS is arrogant and shortsighted with potentially disastrous consequences for the US as a financial center. Add this to the burden of Patriot Act enforcement that has swamped the banking system with significant costs and personnel burdens (and has yet to catch terrorists), banks will spend more time and money on law enforcement than they do on servicing clients. The clock is ticking and on August 27th the IRS issued a Notice for Comments by November 1, 2010 that they will use to guide the writing of the regulations for the Act. At stake is the definition of "foreign financial
  4. 4. institution" which is key because, as it stands, the act does not provide an exemption in the case of a foreign bank that has a US branch. All banks with offices in this country will be required to sign an agreement with the IRS to turn over lists of all US citizens with accounts of that bank anywhere in the world. Foreign banks could even be required to withhold payments as an intermediary for US citizens. Some interpretations go so far as to even demand correspondent banks provide the names of all US citizens who have accounts worldwide in their banks. Far reaching extensions of US tax collection laws as the Congress attempts to make not only US banks but all banks with a presence in the US agents of the IRS. This will create a whole layer of regulatory enforcement which will be imposed on any bank that wants to have a presence in the US. Comment on this article Small Business Still Taking it on the Chin Small business (75% of which have 10 employees or less) is the backbone of job creation, accounting for nearly 70% of all new jobs and they are not hiring. Take a look at our editorial that was published in the Miami Herald in July. The uncertainty created by health care, financial reform and pending tax increases have made it very difficult for businesses to figure out their future costs. That makes companies reluctant to add new workers and make capital investments. The new small business bill in Congress misses the point and is a long term, not a short term solution. Tax credits for capital investments would help but one has to be making money to use tax credits. Many small businesses aren't. We can expect the small business owners to sit on the sideline until they sense calmer waters. The administration needs to turbo charge getting money into this sector. Yes pumping money into small banks will help in the long run. They need help from the banks now and not from banks that are backed to the wall themselves. Can't we find a more realisitc way of assisting the community banks with problems caused by market conditions rather than choking them to death slowly? The extermination of the community banks cuts off small business's most reliable source of growth. Comment on this article Hot Jobs - South Florida Well, South Florida may be hot, but banking jobs have been taking a hiatus after a busy late spring and early summer hiring trend. It seems that everyone was on vacation in August, but now that everyone is returning, things are beginning to pick up again. The trend is that banks are looking for senior managers in commercial lending, credit and compliance, but they need to be approved by the regulators. And of course, good credit analysts and business generators are always in demand. Another area that we expect to
  5. 5. see hiring heating up is in consumer compliance and anti-money laundering positions as the effects of the Reform bill work though the system. Comment on this article On the Move-Where Your Friends Are Hanging Out Jesus Valencia has just been appointed as the new President of Ultralat. He comes from Merrill Lynch where he was head of the International Wealth Organization. Roberto Perez is now a Senior Lender at Intercredit Bank. Prior to this, he was with JGB Bank. Felix Garcia, formerly with Bank United, has just joined Pacific National Bank as their Chief Credit Officer. David Hernandez has recently joined BAC as the Chief Risk Officer. He is coming from Great Florida Bank where he was the Sr. Risk Officer. Michael Dwiggins has recently started at Espirito Santo Bank as a VP of the Trade Finance Division. Mahesh Pattabhiraman, formerly of Pacific National Bank has been brought on board as the Chief Lending Officer of Union Credit Bank. Hector Ramirez, previously with BBU Bank has been made the Chief Lending Officer at Eastern National Bank. Gordon Joost, a former Managing Director of Standard Chartered has moved over to Cititbank to be a Managing Director, Head of Bank Services Group Latin America. Charles Alzati has joined Terrabank as SVP of the bank's Personal Banking Group. Charles was most recently a consultant at Nason & Nason. Robert Gutierrez has just arrived at Nason & Nason as a Senior Recruiter. Prior to this, he was an AVP Human Resources Officer at Ocean Bank. Comment on this article Nason & Nason would like to wish Carlos Perez, who was released from the hospital after spending several weeks there, a speedy recovery. What's ahead? A lot going on. Feel free to make comments on our blog. Give us some suggestions on topics you would like to see covered and let us know who else is on the move for our next issue of . Contact us at
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