World Trade - September 2008 - (Page 31) some pain, but it has been contained within specific added: “If six insurers look at a deal, and only one is willing parts of the trading economy. to do it, that insurer can write its price.” And, he reports, The long version is to ask, and answer, why trade exporters with existing policies can usually continue to finance has managed to avoid (so far) the severe disloca- cover the same buyers, but, “if a company does not have a tion that began with mortgages and migrated to other policy, it can be harder to place the coverage.” sectors, damaging financial institutions and squeezing Carey Fiertz, head of Export Risk Management (Salistheir customers. bury, Connecticut), a credit insurance specialty broker, finds The quick answer: trade transactions are mostly banks now more selective in the medium-term equipment short-term, and are largely self-liquidating arrangements; deals they take on, while charging more. Lender “spreads” lenders and insurers have become highly sophisticated (the amount over and above the standard base rate) can be in managing trade finance risks, significantly higher. “On a $5 milincluding the use of massive lion deal, the interest rate recently Internet-based information plat- Smaller exporters appear was often 1 to 1.5 percent over forms, while the resources availto be facing a squeeze LIBOR (the London inter-bank able have grown dramatically, as standard), but lately it’s been 2 to many more lenders and insurers in their access to credit, 2.5 percent. And “some sectors have entered the field. are tough; banks can be reluctant Let’s look first at what’s been to finance them, sometimes even perhaps inevitably, happening so far. with insurance coverage.” since they are typically For starters, lenders and insurAt the same time, smaller ers, as expected, have become exporters appear to be facing a more reliant on more cautious and raised the squeeze in their access to credit, price of their services. Many of perhaps inevitably, since they are outside financing. the pros in the field, when asked, typically more reliant on outside respond with similar points, but financing. express them in contrasting ways. In Miami, Stephen Fancher, who runs the Florida “Financial institutions have pared down their level Export Finance Corporation, a state government unit, of exposure,” says Bruce Proctor, Managing Director of reports that, “it is definitely hitting some of the smaller JPMorgan’s Global Trade Services unit in New York. people that we deal with. These firms are facing trouble “They are somewhat less open and less aggressive in in accessing finance and in dealing with slow payments responding to opportunities.” by foreign buyers.” At Atradius Trade Credit Insurance in Baltimore, Meanwhile, the credit crunch also opens opportunities Brett Halsey, CEO, counts several corrective actions to for institutions that have escaped the crunch, to expand reflect the new risk profile. First, the company has cut their trade finance operations. Bruce Proctor at JPMorback involvement in specific sectors, among them con- gan emphasizes it’s a good time to re-invest in the sector. struction, building materials, plastic resins, specialty “We are pursuing growth in key markets for trade serretailer operations, textiles, and paper. vices, accelerating product development, adding people Second, with insolvencies-bankruptcies and claims and expanding our technology base.” In buoyant places back to normal levels from a more benign environment like the Middle East, for example, “we are shown quite a over several years, Atradius is now more selective in few deals, especially in infrastructure projects.” choosing customers, taking a closer look at customer In New York, at First Capital, a diversified finance experience and loss ratios. And while the average pre- company, Anthony (Tony) Brown, International Managmium rate has seen a slight increase, the credit commit- ing Director, smiles: “We have been boring consistently tee’s careful scrutiny of each country’s risk profile has on trade finance. We have money to lend, and have not helped keep prices under tight control. been distracted. We are reaching out to companies that In Houston, Tom Wells, managing director of Vinmar are not getting finance from their lenders, or are facing Finance, a specialty trade finance company (part of global restrictions.” plastics marketer Vinmar Group), stresses the double And at Atradius in Baltimore, Brett Halsey calls the whammy angle: higher costs are raising working capital recession “an opportunity to reach new clients who are needs of exporters and importers, at a time when lenders realizing the value of trade credit insurance.” and insurers are more cautious. “There’s no lack of credit, but borrowers need more to do the same volume of busi- The long version The long version of what’s happening, why trade finance ness, and the lender limits they face are tightening.” Gary Mendell, president of Meridian Finance Group has escaped the dislocation that is striking other finanin Santa Monica, California, a credit insurance broker and cial sectors, reflects developments that go back about financial arranger, stresses that buyers are pushing suppli- twenty years. In the 1980s, the Latin American debt crisis brought ers to offer longer payment terms, but are also paying their invoices slowly. “That is creating more demand for credit losses, though most involved sovereign debt. The credits were syndicated loans or bonds, with dozens of U.S. banks insurance, and premiums are rising a bit.” Until recently, insurers have been limited in hiking rates going along for the ride, buying into a piece of the action. because of the intense competition they face, but, Mendell The outcome was a sobering change in attitude, managing WWW.WORLDTRADEMAG.COM 31 http://WWW.WORLDTRADEMAG.COM
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