Chelan David

Wednesday, 23 November 2005 05:13

Understanding the AMT

The alternative minimum tax (AMT) is affecting a growing percentage of taxpayers. And not in a good way. The tax, which applies to both individuals and corporations, is complicated.

It is important, says Mary Ann Quay, the co-managing partner of Vicenti, Lloyd & Stutzman LLP, to be cognizant of this law.

“People really need to be aware that the possibility is there,” she says. “Without knowing that, you can unwittingly do some things that you think are going to save you taxes but don’t.”

Smart Business spoke with Quay about why the AMT was originally implemented, the difficulty in minimizing this tax and why she doesn’t expect lawmakers to make any radical adjustments to it anytime soon.

Why did Congress originally institute the AMT?
The alternative minimum tax, which was started in 1979, came at a time when tax rates were fairly high. Congress was concerned that there were a number of wealthy taxpayers who were not paying their fair share of taxes by...taking deductions that were allowable and that were generally only available to the wealthy.

Things like depreciation, depletion and high deductions for state income taxes and property taxes that normal people don’t get. There were enough people in the wealthier category who weren’t paying very high taxes. So in order to remedy that situation and get more tax revenue, they passed the alternative minimum tax.

Why are people in the middle-class tax bracket now being hit so hard by this tax?
Over time several things have happened. One is that in 1986, the tax laws changed so there were fewer brackets and the rates went down. As a result, the wealthier taxpayers, and even the people in the middle tax brackets, are not being taxed at as a high a rate on the top side as they used to be.

At the same time, peoples’ incomes have gone up due to inflation and general increases in earnings. So people have higher incomes and the exemption amount, the amount that’s allowed as a deduction for alternative minimum tax purposes, has not been indexed to inflation.

The level at which taxpayers are being hit by the alternative minimum tax has decreased so that middle-income people are now being hit. There are projections that by the year 2010, one-third of all taxpayers will be paying alternative minimum tax.

How can people plan ahead to minimize tax liability?
The way the AMT works is there are two tax calculations that everyone needs to do: the regular tax and the AMT tax. If the AMT is higher, then you pay it. The things that you do to reduce AMT also increase your regular tax. So you really don’t plan to minimize AMT so much as you plan to find the crossover point where your taxes are the lowest they can be and at the same time not lose the deductions that you end up losing with AMT.

What you try to do is make sure that you know whether or not you’re going to be in the AMT situation for the year, and if you are, you defer or put off those types of deductions so you don’t lose them. Hopefully you can put them into the following year so you can use them when you might not be affected by the AMT.

How can a company help to protect its employees from the AMT?
If a company requires employees to pay for certain things on their own like automobiles, computers and travel, the employees do have the ability to deduct those on their tax returns, but they’re usually itemized deductions. If you have a large amount of those, you end up losing them to AMT.

What a company can do to benefit their employees is pay those things for the employee rather than have them pay it directly. Even if you do that, while at the same time reducing wages, the employee comes out better in the long run and it’s the same out-of-pocket total for the company.

How does a small corporation qualify for the AMT exemption?
If they have average earnings in three years prior to the tax year of under $5 million in revenue, then they are exempt from the alternative minimum tax.

What changes do you expect to see in regards to this tax law in the future?
There has been a lot of talk about repealing the AMT, but I don’t think that is going to happen, especially with the budget being like it is. It would be giving up a huge amount of revenue for the government. In fact there are projections that by the year 2008, the AMT is going to be more tax than the regular tax; it would be cheaper to eliminate the regular tax than to eliminate the AMT. So I don’t think it’s going to be eliminated.

Mary Ann Quay is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach her at

Wednesday, 29 June 2005 11:35

Bringing out the best

Sandy Harbrecht has applied her teaching skills to the business world by incorporating a lesson plan that brings out the best in other people.

The strategy has proven remarkably successful. Paul Werth Associates, the public relations firm she took over from her father in 1985, is one of the largest firms in the Columbus area, and during her tenure, the shop has won eight Silver Anvil awards -- the Public Relations Society of America's highest award.

You are a former banker and educator who made the switch to public relations. Was it a difficult transition?

It happened such a long time ago, it seems like it was a natural thing. My father owned and operated this business, so he really was a huge help in training me, coaching me, encouraging me.

He was my mentor and he also introduced me to other good mentors early in my career with the company. I felt that the transition was made easier by people I had the opportunity to work with, who had the experience, who wanted to see me be successful.

What strategies do you use in managing your employees?

We have a philosophy, or set of values, that really underpins everything that I try to do in working with my colleagues, and that is we try to be a learning organization and we try to be an organization that brings out the best in others.

We try to keep things interesting for people that work here, keep it challenging, encourage them to stretch and to do things that might be a little bit out of their comfort zone, and provide lots of opportunities for them to work on interesting assignments.

We also encourage them to take some risks; not wild risks, but calculated risks with their abilities, and provide a work environment that is pleasant and comfortable.

How do you foster creativity within the company?

It starts by trying to recruit people who are creative or enjoy the creative process. The other piece is encouraging them to collaborate with each other.

I think the best ideas don't come from sitting in your office all by yourself all the time. You can meet with clients who value your creativity, as well as colleagues who are also creative, like the creative process and want to be in an environment where ideas are stimulated by each other.

You recently acquired the Haunty Agency. How do you position this acquisition when pitching new business?

It's helped us because the people who came with the Haunty Agency are very much aligned with our business philosophy, which is that communication is about integrating and aligning everything you do. It starts there.

From that, I think it is important for our clients to understand the quality of work that they bring to the table is on par with the quality of work that people have come to expect from our firm.

That quality message is important. If people understand that what the advertising agency brings to the table is very much in sync with what they have always valued in Paul Werth Associates, then that's the best place to start. From there, they have to get comfortable with the creative side on the Haunty agency.

Once they have the opportunity to interact with those people, they see it, believe it and get excited about it.

What is your strategy for continued growth?

We have taken on more and more national clients over the last five years. We want to keep and grow the national clients that we have. The second part is we want to selectively add national clients that are a good fit with our company.

It can be in the kind of work that they require, it can be in the way they value public relations from a strategy perspective. It's several things that make a national client a good fit for us. We don't want to add hundreds of clients, we just want to add really great clients.

What has been the most rewarding part of your job?

The most rewarding part of my job is using my business and my teaching skills to help bring out the best in other people. To see organizations succeed and have a belief that you contributed even a small part to their success is extremely gratifying, and to see people grow and flourish and prosper in our client organizations or in our company is a tremendously rewarding experience.

How to reach: Paul Werth Associates, (614) 224-8114 or

Thursday, 26 March 2009 20:00

Full-service banking

Innovations in the banking sector have transformed the way that business is conducted. In order to fully take advantage of such technological advancements, it is imperative to partner with a bank that communicates how new products and services on the market can improve your company’s efficiencies.

“If it’s been over a year since you’ve had a conversation with your bank about new innovations and the banking services you should have at your disposal, then you are probably being underserved,” says Syd Saperstein, senior vice president, division manager of Comerica’s Special Corporate Financial Services Division.

Smart Business spoke with Saperstein about what products and services should be expected from one’s financial institution.

How would you define the term ‘underserved’ as it relates to banking?

The banking industry has grown, as all industries do, and has come up with innovations, new cost-effective services and labor-saving solutions to handle problems that businesses face in the electronic age of the 2000s. We have consolidated and developed a lot of services that used to be spread around many different banks or many departments within a bank — now they are often seamlessly available in one place. Most customers, however, have not been given a road map on how to interface with their financial institution. And most financial institutions have done a relatively poor job of educating their customers about what improvements have been made. Consequently, customers are not getting the full benefit of the banking relationship that they could.

How can a business determine if it is being underserved by its bank?

Start by asking some questions: When was the last time my bank spent the time to educate me on the improvements in their world? When was the last time they pointed out improvements to the interface between businesses and banks? How can changes in treasury management services and the work that banks do internally translate into cost savings for me by taking over some of my work?

If you haven’t had a conservation like that, then chances are — just by the sheer increase in new products and services that banks develop and the passage of time — you are probably being underserved.

What advancements in the industry have occurred in the past decade or so?

Complicated multilevel transactions are now handled electronically, and there are advanced methods for batch file handling and consolidation. Internal accounting and subaccounting systems have developed within the most progressive banks. These sophisticated systems enable a bank to slice and dice their customers’ business and deposit relationships into regions, territories and sales offices, for example. In the past, a company’s employees used to have to keep track of all this information. Now, it can be handled within the bank, which saves the customer on personnel expenses.

What specific industries are most commonly underserved?

The ones we find most underserved are either the newest industries or the oldest industries. A company that starts today may ‘think small,’ go to a local branch and find the expertise that exists on the street level within a banking structure is not sophisticated enough to handle its needs.

On the other end of the spectrum are old companies with a lot of mature management, such as law firms or insurance companies. Law firms are often run by a management committee composed of the most senior partners. While their skill sets were probably well suited to manage a banking relationship 25 years ago, they may be very different from the skill sets that are being taught and used most effectively today. In order to keep their company as progressive as possible, they could very well benefit from partnering with a bank that is able to give them some up-to-date advice about what should be improved.

What products and services should be expected from one’s bank?

First, businesses need to take a look at the nature of the relationship. If they’re not having a conversation with their bank about innovations at least once every six months then something is wrong. Innovations within the banking world happen that frequently.

Second, you should investigate how the bank can take over labor-intensive transactional activities that are currently being handled internally. A specific example is processing 1099 Interest Income statements. Law firms frequently have to dedicate lots of staff time or even add staff in January and February so they can handle the processing of 1099 forms for the individual taxpayers whose funds are sitting in trust accounts with them. In today’s world, the 1099 work can be done by the bank for each component of a trust account. What’s worse is that, based on our experience and what we have learned by survey, the error rate on 1099 work done by nonfinancial institutions is around 20 percent, which can be very costly. Our error rate, for example, is far less than one-tenth of 1 percent. This is an area where businesses could avail themselves of using a bank’s services at low or no cost and replace a cost that is very high to them.

SYD SAPERSTEIN is senior vice president, division manager of Comerica’s Special Corporate Financial Services Division. Reach him at (415) 477-3246 or

Monday, 23 February 2009 19:00

A proactive approach

Disasters, both natural and man-made, can arise anyplace, anytime. That is why it is so important to have adequate commercial property coverage in place and a plan of attack should an unfortunate event transpire.

“As a first step, have a plan in place ahead of time to deal with various situations in the event of a catastrophic loss,” says Henry Emrich, partner at Secrest Wardle. “Also, have a specific person(s) in your company familiar with the plan and charged with the responsibility for dealing with damage or loss so that they can coordinate activities needed to get the business back up and running again.”

Smart Business spoke with Emrich about commercial property claims, the importance of thorough documentation and what guidelines should be followed.

How should a company go about making sure it is adequately covered for commercial property claims?

I would encourage a company to inventory its assets on an annual basis. This should include reviewing the values at which properties are carried on the books as well as appraising their market value. These values should then be communicated to the insurance agent so that any coverages can be updated accordingly. Current and accurate valuation of insured properties is critical as commercial policies often contain provisions that can negatively impact an insurance claim. Maintaining copies of any valuations and/or any documents supporting the same is also a must.

In the event of a claim, why is it so important to provide thorough documentation?

First, the policy likely requires that such documentation be produced as a condition to any consideration of the claim by the insurer. Second, the insurer won’t pay you what you believe your property is worth unless you provide proper documentation supporting your valuation of the loss. To the extent that proper and current documentation exists and is easily accessible and understood by the insurance company, the more likely it is that your claim will be promptly adjusted and paid.

How can a company expedite the process of getting its operations up and running again?

The first step in the event of a loss that affects the operation of the business would be to immediately contact the agent and advise them of the loss and the need for immediate mitigation efforts. Advise the agent of the impact on your business’s operation and your need to immediately get the business back on track. Most insurance companies have access to a whole range of providers who can provide you with the kind of help you need to deal with any kind of loss and loss mitigation efforts. Because the policy of insurance places certain responsibilities on the insured at the time of the loss, the sooner this notice is given, the sooner any investigation will be completed so the company can move toward getting things up and running again.

What guidelines should be followed in order to minimize any problems with the claim?

Know what the policy requires from you in the event of loss and be certain these requirements are followed. The first requirement after a loss is to provide prompt notice of the loss to the agent. Following up oral communications to the agent or insurer with written communications is recommended. Designate one person who has sufficient knowledge and experience with the business operation and the applicable insurance coverages, policies and procedure to handle the claim. In connection with this, be certain that when the actual claim is submitted that it be as accurate as possible and thoroughly supported with accurate documentation. Don’t try to inflate or overstate the claim, as that is the quickest way to derail prompt adjustment and payment of the claim.

The policy may require a great deal of information to be submitted that you may not think is appropriate. However, the policy is often quite broad in what the insured can be required to provide in the event of a loss and compliance with any policy requirement in this regard is typically viewed as a condition precedent to the insurer’s liability. Thus, providing whatever is requested by the insurer as well as any other supportive documentation is the best way to minimize any problems with the claim.

How should a business proceed if it is unhappy with its insurance company’s proposed resolution?

If you haven’t already retained an independent commercial adjuster or other professional with sufficient knowledge to value your loss, you might want to do so. Additionally, the policy often provides for an appraisal in the event of a dispute over the amount of the claim. This would typically require the insured and the company to retain an appraiser to evaluate the loss, and if they are unable to agree on the amount, obtain an umpire to make a final decision on the amount being claimed. Retaining counsel with experience in handling insurance matters to file a lawsuit is also recommended particularly if your resolution is not acceptable.

HENRY EMRICH is a partner at Secrest Wardle. Reach him at (616) 285-0143 or

Monday, 26 January 2009 19:00

Changing it up

Choosing the right bank is critical in today’s gloomy economic climate. As credit markets tighten, it is more important than ever to have a banking partner who can provide the financial resources necessary to grow your business.

Finding a new financial institution is not a task that should be taken lightly, however. It is important to be thorough during the vetting process.

“Get three reference names of a bank’s current clients and call them to see how the bank has been acting in these uncertain times,” advises Joseph Yurosek, senior vice president and regional group manager at Comerica Bank. “Also, get references on the individual at the bank that you would be working with. These are the times that you want to work with someone who has been with the bank for years.”

Smart Business spoke with Yurosek about selecting a bank in uncertain times, how to make a seamless transition from one financial institution to another and the importance of communication.

How should a business go about selecting a bank in uncertain times?

Business owners should make sure that they are keeping up with current events. They should spend time checking, probing and asking questions so they can be prepared for issues that could possibly impact their business. The days of ‘only relationships matter’ or ‘only pricing matters’ is changing dramatically. In today’s environment, knowing that your bank will be financially stable for the next two to five years is extremely important. We service the middle-market, and prospective clients of ours should be doing all of the due diligence that they might not have done in the past, even a year ago. Find out what the bank’s business is, what its capital position is, what its approval process is and get names for references.

Why is it so important to look for a bank that has a history of supporting its customers through various business cycles?

You want to make sure that the way the bank acts in good times is not dissimilar to how they will act when the economic outlook is not clear. You should look for consistency with people, bank decisions and, ultimately, a history of support, which would allow you to navigate through your own tougher times.

Once a selection has been made, what steps can a business take to maximize the relationship with its bank?

Companies should be following up with everything that was discussed during the courting or selection process. We make sure that we maximize our relationship with the borrower when we complete the courting stage and clients should do the same thing. Clients should make sure that the bank is following up on all of its promises, products and service levels that it indicated it could provide. Also, new clients should take advantage of meeting the bank’s senior executives. If I’m a client today, I want to know who I’m dealing with — in a business unit, in a credit function, on a product function — so I can gain all of the advantages that I need from the financial institution.

How can a company most effectively transition from one financial institution to another?

It is important to have someone who is paying attention to all of the details. The last thing you want to do — and I hear this from CEOs and comptrollers all the time — is go into a transition not having thought everything through. This includes the timing where you start depositing checks into your new account, the day you start writing checks against your existing account, the day you start sending wires out on your new bank account and the day you go into your branch to make your first deposit. You should spend time with the bank’s transition team and go through all of the logistics in order to ensure a smooth transition.

How important a role does communication play in sustaining a positive working relationship?

Communication plays a huge role. Any successful client-bank relationship is based on a partnership. The way to get the most from your financial partner is to communicate your outlook, your needs and the performance of your business — good, bad or other. Sometimes customers don’t feel like they should be communicating everything with us; they want to absorb it first. If they provide information to us early on, however, we can help them out earlier by providing suggestions and ideas in an advisory role. Customers should take advantage of the fact that banks have multiple clients, maybe in different industries, maybe with different organizational structures, but who might have faced similar issues. Banks can use the history they have to advise customers in meeting their needs. If the bank doesn’t know what’s going on, it’s tougher for it to deliver that service.

JOSEPH YUROSEK is senior vice president and regional group manager at Comerica Bank. Reach him at (714) 435-3998 or

Monday, 26 January 2009 19:00

Liability reform

According to the U.S. Chamber of Commerce, companies have paid out an estimated $70 billion on more than 700,000 asbestos injury claims, making it the most expensive type of litigation in U.S. history. Rife with fraud and abuse, the asbestos litigation system is clogged with questionable lawsuits.

“You may be struck by the tenuous nature of the connection to asbestos, but it may nevertheless be real,” says Timothy Batton, partner at Secrest Wardle. “Size is no deterrent: Fortune 500 companies to mom-andpop hardware stores have been sued.”

Smart Business spoke with Batton about asbestos liability reform, who can be sued due to the presence of asbestos and how to proceed in the event that a claim is filed.

What should businesses know about asbestos liability reform?

It is important to realize that changes have been jurisdictional and incremental. On a national level, all manner of reform has been attempted, including individual non-bankruptcy class settlements. However, the U.S. Supreme Court overturned a class settlement in 1999. This decision made it much more difficult to obtain approvals of such settlements in a nonbankruptcy setting. Before that decision, companies with significant exposure to asbestos cases nationwide had to consider bankruptcy in order to put the cases behind them.

In response to the burden that litigation was perceived to be imposing on businesses, Congress has repeatedly attempted to get involved to find a solution. This has usually involved the establishment of some sort of national trust fund that would be designed to compensate each claimant according to preset criteria. However, the proposed plans have not been passed into law. With the failure of national reform, individual states and jurisdictions have taken center stage.

How has the landscape of asbestos litigation in Michigan changed in recent years?

Within the last several years, there has been an attempt to convince the Michigan Supreme Court to impose so-called inactive dockets. Asbestos cases can be divided into two categories: asbestotic and those involving cancer. Under these inactive dockets the asbestotic cases, which are typically the least injured plaintiffs and account for nearly 95 percent of the docket, would be rendered inactive. They would remain so until the more serious cancer cases have been resolved. Such a plan shifts the risk of bankruptcy and exhaustion of funds to the less injured plaintiffs. Although some states have adopted this approach, it has not been approved in Michigan.

More recently, the Michigan Supreme Court has imposed an ‘anti-bundling’ rule, which prevents trial judges from ordering more than one case to trial simultaneously. Previously, several cases could be tried at once, which translated to increased costs and risk for defendants.

Who can be sued due to the presence of asbestos?

The types of companies who find themselves sued by asbestos claimants have broadened considerably since the litigation’s inception. At first, the defendants were the major asbestos insulation manufacturers. With bankruptcies and global settlements, those have gone away. This has caused plaintiff attorneys to be very creative in finding and targeting new classes of defendants. They can now include manufacturers of all types of asbestos insulation or parts, including valves, pumps, floor tiles, ceiling tiles, fans, automobile parts and all types of construction materials. Any type of contractor who worked with asbestos can be sued, whether the contractor was involved in construction, repair or maintenance. If your premises contained asbestos, nonemployees who worked or visited there may sue you.

In the event that a claim is filed, how should one proceed?

If your company receives an asbestos personal injury lawsuit, it is important that you retain an attorney skilled in this area of the law. It is vital that you select someone with experience in the jurisdiction in which you are sued and who is familiar with local plaintiff counsel. The complaint will probably not have much information and may not even notify you of what products your firm is allegedly associated with or the form of the alleged liability. It will be important to perform a full review of company history, operations and records to determine what, if any, historical relationship to asbestos existed. Your attorney should be closely involved in this review and be adept at identifying paths of asbestos exposures of which you may not be aware.

It is usually not desirable to seek an early settlement. For individual cases, the possible settlement amounts can be deceivingly low. However, entering into those types of settlements can mark you as willing to settle, motivating plaintiff attorneys to sue you in many more cases, leading to an exponential increase in costs and making it more difficult to extricate you later. Attention then should be paid to retaining and developing records that will support a defense to the claim(s), while your attorney seeks methods of curtailing the filing of new cases.

TIMOTHY BATTON is a partner at Secrest Wardle. Reach him at (248) 539-2823 or

Friday, 26 December 2008 19:00

The rising dollar

The U.S. dollar has surged as investors, wary of the stock market’s extreme volatility, have flocked to the relative safety of U.S. Treasuries. In some respects, a strong dollar adversely impacts the U.S. economy: It increases the trade deficit while weakening exports and eroding the competitiveness of American-made goods.

However, some entities stand to benefit from the strengthening dollar.

“American importers, consumers buying foreign goods, corporations making capital investment in overseas ventures and American vacationers traveling overseas can all benefit from a stronger dollar,” says Gary Loe, vice president, foreign exchange at Comerica Bank.

Smart Business spoke with Loe about the dollar’s rise, its implications on the global economy and his prediction for how the dollar will fare in 2009.

Why has the dollar strengthened against major currencies?

This past summer, beginning with the global credit/financial crisis, we experienced a ‘flight to quality’ effect. As equity markets around the world have been battered, many investors sought the safety of U.S. Treasuries to protect their money. As investors from around the world reevaluate their risk tolerance, they buy dollars in order to purchase U.S. Treasuries, which are very liquid and have low default risk, backed by the power of the U.S. government.

The world started a global economic race to the bottom in 2008. The world economy has been heading toward a global recession with the U.S. in the lead. The first to reach the bottom should be the first to bounce back. Problems are not just contained within the U.S., as evidenced in Germany. Europe’s largest economy is at a 15-year low in consumer confidence, and the spillover in the credit crunch has already reached Asia. Many believe that the U.S. government has helped steer us away from a deep depression. The U.S. can act quicker to get to an eventual recovery as opposed to Europe where many countries are needed to come together for action.

How has the stock market’s recent volatility affected foreign exchange?

The market has experienced extreme volatility with a downside trend. We have had thousand-point swings in a day in the Dow. We have had 10 percent swings in a day in the dollar against hard currencies like the euro, British pound and Australian dollar. It’s not just the U.S. stock markets that are volatile and weak, as seen in the S&P 500, currently down about 45 percent this year. London’s FTSE index and Tokyo’s Nikkei 300 index are down about the same. The biggest effect the volatility has had in foreign exchange is the increased bid/ask spreads and diminished liquidity with tighter credit standards.

Is a strong dollar good for the United States?

Usually, the word ‘strong’ is perceived as a positive feature, but when it comes to a country’s economy, it may not be in its best interest. Some say a strong dollar helps accelerate growth. Growth will attract foreign capital and boost our stock market. This leads to increased production, consumer spending and an expanding economy. However, there are many negative ramifications. It tends to widen the trade deficit as we purchase more imported goods. This increase has its detriments as it erodes overall growth, hurts GDP and weakens the economy. It will also hurt corporate profits of global companies as foreigners will have to pay more for U.S. goods. The dollar should act as a self-correcting mechanism as a stronger dollar leads to a weaker one and vice versa.

How do foreign central banks tend to react when the dollar rises?

Central bankers in export-driven economies, such as Japan, would tend to do nothing as it would allow growth in the export sectors. However, if I am a central banker where my currency is devaluing at a pace that needs defending, I would raise my interest rates to defend it. This should attract flows into my currency, therefore stopping the depreciation. Malaysia’s central bank froze its currency in the 1997 Asian financial crisis when facing steep depreciation by cutting off all market players.

Where do you see the dollar heading over the course of 2009?

Through the beginning, we will still be watching for weak global equity markets and weak commodity prices and bracing for possibly the biggest economic slowdown since World War I. As investors flee from chancier bets and more deleveraging takes place in the credit world, this will give further room for boosts in the U.S. dollar. Take advantage of any further dollar strength at the beginning of 2009. Once our government’s actions in stimulating the economy and getting our credit situation back in check take effect, look for the dollar to start weakening again, which I predict will happen later in 2009. Fundamentals are bound to return. At the forefront will be renewed talk about America’s huge ‘twin deficits,’ budget and trade. In addition, all the printing of money that has, and will, occur to help us out of our current financial and economic crisis will turn inflationary, which will erode the value of the dollar.

GARY LOE is vice president, foreign exchange at Comerica Bank. Reach him at (800) 318-9062 or

Tuesday, 25 November 2008 19:00

Expanded coverage

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that provides protection against the loss of insured deposits. On Oct. 3, President Bush signed the Emergency Economic Stabilization Act of 2008. This legislation temporarily increases FDIC deposit insurance from $100,000 to $250,000 per depositor through Dec. 31, 2009.

“Businesses will enjoy the same coverage that individuals enjoy: $250,000 coverage and possibly unlimited non-interest bearing DDA (demand deposit account) coverage,” says Susan Lepore, first vice president of Compliance of MB Financial Bank in Chicago.

Smart Business spoke with Lepore about the recent financial crisis, what changes have been made to FDIC insurance coverage and how these modifications affect businesses.

In what ways has the recent financial crisis impacted the banking system?

In the liquidity area, there has been greater competition for deposits, which has made retail consumer and business deposits much more expensive. The reason there has been more competition is that large money center banks that had other sources of funding have experienced disruption in access to those sources. As a result they have moved a higher percentage of their funding to consumer and commercial deposits as opposed to wholesale funds once more readily available from institutional investors.

What specific changes have been made to the FDIC insurance coverage?

Very early in the crisis the FDIC expanded coverage to $250,000 per depositor and may cover even more than $250,000 at one insured bank if you own deposit accounts in different ownership categories. In mid-October, the FDIC announced a temporary liquidity program that extends unlimited coverage for non-interest bearing DDAs. The way this works is all banks were in the program through December 5th. If banks chose to opt out of the program, they had to send notice to the FDIC by December 5th. If banks did not opt out, they are in the program through December 2009, and their customers have unlimited DDA coverage through that date. There will be a list maintained, and banks will have to prominently display whether or not they are in the program. This will make it easy for customers to determine if they have unlimited non-interest bearing DDA insurance coverage at a particular bank.

What does the expanded FDIC insurance coverage mean for businesses?

The expanded coverage might cause businesses to rethink how they structure their bank accounts. In the past, many companies maintained a certain amount of balances in a DDA. Balances above a target level were swept into a customer repurchase liability account, which was collateralized — much like a deposit account that pays interest — by either investment securities or loans. This enabled a business to earn interest on excess balances. With the enhanced DDA coverage and the current very low interest rate environment, some companies are keeping much higher balances in their DDA since they can be fully insured under the temporary program until Dec. 31, 2009.

Do rules governing the accounts of businesses differ from those of personal accounts?

The most significant difference is that corporations cannot have deposits in interest-bearing DDAs. Companies, as well as consumers, are permitted to hold interest bearing money market accounts, although they are limited in the number of transactions they can have on a monthly basis.

What strategies should companies who maintain more than $250,000 on deposit use to minimize the risk of losing money?

There are three things companies can do. First, if a business is extremely risk averse, it can keep all of its balances in a non-interest bearing DDA at an FDIC insured institution that is participating in the Transaction Account Guarantee Program, which would provide unlimited FDIC insurance coverage at a participating bank. If the business wants to earn some interest, it can sweep excess balances over a certain level to a customer repurchase liability account, which would be collateralized with either investments or loans.

Finally, companies can participate in the Certificate of Deposit Account Registry System (CDARS) program. This program allows member banks with certificates of deposit customers to extend FDIC insurance coverage to as much as $50 million. Basically, you can put very large balances in this type of account and the coverage gets aggregated among several banks, which allows customers to have much higher FDIC insurance coverage limits. This program is also available for consumers.

SUSAN LEPORE is the first vice president of Compliance of MB Financial Bank in Chicago. She can be reached at (847) 653-1771 or

Thursday, 25 September 2008 20:00

Industrial acquisitions

One of the biggest mistakes that companies make when searching for a suitable industrial facility is waiting too long to start the process. The closer you are to your lease expiration date or purchase of a new facility, the less leverage you will have with your landlord. Even if you wish to stay in your existing location, considering all possible alternatives is a must. Properly evaluating alternatives requires a strategic plan with a qualified adviser.

“I would suggest the process begin anywhere between nine and 18 months in advance of the targeted occupancy date. This timeline varies based on the complexity of the deal,” says Ed Lampitt, vice president and principal for Colliers Turley Martin Tucker.

Smart Business spoke with Lampitt about industrial real estate, the importance of a supply chain analysis and how to find a quality tenant representative.

What is the current environment for industrial real estate like in the St. Louis area?

2008 can be wrapped up in one word: uncertainty. In short, everyone is uncertain about how the election and oil prices will impact the economy. Corporate America is struggling to forecast future real estate requirements and real estate investors are concerned about the changes in the capital markets. All of the uncertainty in the economy is slowing things down. It is like trying to punch someone under water. As hard as you try, you can’t generate any momentum. All that being said, St. Louis has performed very well, with more than 1.7 million square feet of positive absorption through the first half of 2008.

What factors make capturing prime industrial space so difficult?

Construction pricing is a real problem. The overall price of construction is increasing at historical rates. Contractors and their suppliers are having a hard time holding numbers for more than 30 days. This makes it very difficult to forecast what deal you’re going to be able to make.

It is important to find a building as close to what you need as possible so changes to the space are minimized.

Another factor is fuel pricing. Companies are continuously analyzing how transportation costs are affecting their supply chains, how this will affect where their facilities are located and, ultimately, how they’re going to serve their customers.

Why is it important to develop a strategic real estate plan when searching for a suitable location?

It starts long before you start searching for an actual building. Corporations are spending more time on the front end analyzing the entire supply chain, not just one portion of it. You can not evaluate facilities in a vacuum. Manufacturing, transportation, inventory control and facilities are part of one discussion. Large corporations have been doing this for a while. The trend we are seeing now is advanced supply chain analysis with small and mid-sized companies. Everybody is trying to better understand what is happening in transportation in order to help determine where they should locate their facilities. Anymore, transportation is 50 to 60 percent of the decision-making process.

Once you get to the real estate portion, timing is so important. For instance, if you have your plan in place, you can look at a build-to-suit rather than just taking speculative space. This will provide you with more options, more flexibility and better economic terms.

What is the biggest mistake companies make as far as lease renewals go?

The biggest mistake is when a company renews without scouring the market to make sure it is getting a favorable market deal. This holds true even if you are not expanding, don’t feel a need to move, or don’t want to spend extra money to set up a new operation. It is important that the market thinks you are willing to move to drive the best economics.

Also, sometimes companies base their decisions on what they are currently paying and that is often a mistake. Typically the market has changed since their last lease expiration. That is where market information becomes so vital. It is strongly encouraged that companies engage a brokerage company to help understand how they compare to the market.

How should a company go about finding a quality tenant rep?

Time and time again, I am amazed companies rarely go through the interview process when selecting a broker. This is one of the most important decisions a company can make and it should take the time to evaluate who its adviser should be. Interview a couple of referred companies (or brokers) and let the best team win.

Lastly, instead of hiring just a broker, companies are hiring firms that can provide additional services. Often, real savings can be achieved in state economic incentives, construction management, supply chain services, etc. Considerable time and money can be saved in arenas outside the actual real estate negotiation. Remember, companies, at most, move every five to 10 years; tenant reps do it every day.

ED LAMPITT is a vice president and principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0383 or

Thursday, 25 September 2008 20:00

Going global

Currently, one of the few bright spots in the flagging U.S. economy is exporting, says Cassie Stiles, first vice president of international trade services for Comerica Bank.

“Trade is driving our small, but positive, economic growth,” she says. “In 2007, exports represented 12 percent of America’s gross domestic product. So far this year, exports have expanded by 18 percent, which is on top of a 12 percent growth in 2007.”

To further encourage global trade and assist exporters, the U.S. Commercial Service provides a number of offerings designed to help small and medium-sized businesses expand into international sales.

Smart Business spoke with Stiles about the U.S. Commercial Service, the services it provides and how a company can secure export financing.

What is the U.S. Commercial Service?

The U.S. Commercial Service is the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration (ITA), which helps to create economic opportunity for American workers and businesses. To increase trade and investment, ITA helps U.S. companies navigate foreign markets. They help educate companies about how to tailor their activities to a specific market with respect to their product slate, financing, marketing, assembly and logistics. In 2007 alone, the U.S. Commercial Service counseled 25,000 U.S. companies. This counseling facilitated exports worth $21 billion and helped create or retain 275,000 jobs in the United States.

What type of assistance does the U.S. Commercial Service provide to exporters?

The U.S. Commercial Service has trade specialists located in 107 U.S. cities, including San Diego, and in more than 80 countries. They work with companies just getting started in exporting as well as assist companies with increasing their sales to new global markets. Their services include world-class market research, trade events that promote a company’s product or service to qualified buyers, introductions to buyers and distributors as well as counseling and advocacy through every step of the export process.

Probably the most popular service offered is the Gold Key service. Prescreened appointments with buyers and distributors are arranged by the trade specialist before an exporter arrives in a specific country. Additionally, help with travel, accommodations, interpreter services and clerical support are also part of the service.

How does the U.S. Commercial Service build awareness of exporting opportunities?

The U.S. Commercial Service expanded the U.S. export base through innovative government-private sector partnerships. By using each other’s organization, databases and global/regional networks, they are able to reach as many small and medium-sized enterprises (SMEs) as possible. Under the Partnership Program, seminars are co-sponsored to support the domestic and international marketing efforts of these SMEs. Topics range from ‘Export Basics 101’ to market- or industry-specific topics. A popular alternative to the seminar is the webinar — a seminar conducted on the Internet and telephone. This can reach participants all over the country and allow access to industry specialists located globally. Finally, trade missions are an excellent way for SMEs to cost effectively visit specific countries and meet with pre-screened business opportunities.

How can a company secure export financing?

An important component for companies expanding into exporting is financing. At Comerica Bank, we work with our clients to provide trade cycle financing — that is, financing that starts at the pre-export stage and continues all the way through the collection cycle. Two programs that have been very helpful to exporters are loan guarantees offered by the Export-Import Bank of the United States (Ex-Im Bank) and the Small Business Administration (SBA). U.S. exporters can obtain short-term working capital loans that are guaranteed by either Ex-Im Bank or the SBA. The loan proceeds can be used to purchase finished products for export or to pay for raw materials, labor and overhead to produce goods for export.

What other options are available?

Since exporters are selling globally, they need to consider how they differentiate themselves from the competition. Two ways of achieving this are to offer competitive terms and to price in the local currency . Both of these have additional risk for the exporter, but they can be mitigated by using export credit insurance and hedging strategies.

While cash in advance is great if you can get it, many exporters find that they need to offer terms to their foreign buyers. Export credit insurance policies protect against both the political and commercial risks of a foreign buyer defaulting on payment. In addition to the risk mitigation, insured receivables can be used to obtain bank financing.

To eliminate foreign exchange risk, an exporter can sell the foreign currency for delivery at a future date through a forward contract. This is called hedging and allows for the company to lock in a rate, hence assuring the company of a certain profit margin. Subsequent changes in rates will not affect the company’s profit margin.

CASSIE STILES is first vice president of international trade services for Comerica Bank. Reach her at or (619) 652-5774. Comerica Bank has entered into a formal partnership with the U.S. Commercial Service to expand the outreach to more potential exporters.