Saturday, September 1, 2007

Business and Industry Intelligence: Money Center Banks

Overview

As of early 2007, commercial banks in the US had total assets of $9,700 billion, and total liabilities of $8,900 billion. Almost 90% of each were due to domestically-chartered institutions.

The ten largest banks control assets of $4,900 billion, $3,700 billion being domestic assets. With the exception of HSBC, all of the top ten are entirely US-owned institutions.

2006 saw feverish M&A activity in the US, with a total deal value of $1,500 billion; activity in Europe was also intense. While private equity firms are increasingly involved, money center banks are still generating substantial revenues through these deals.

The regulatory framework for large banks is due to change, with Basel II compliance likely to demand greater capital reserves, and increase costs. As banks grow larger, the requirement that none should hold more than 10% of the nation's deposits is being seen as restrictive. The fate of this federal cap on deposits may affect banks' organic and inorganic growth.

Citigroup, Deutsche Bank, Bank of America, and HBSC Holdings are all leading players in this sector. They are continuing to adjust their financial product portfolio to client demand, with asset-based loans, for example, showing a rapid increase in popularity. M&A is a common strategy for players to expand, especially into lucrative overseas growth markets.

Key Issues

Basel II - The Basel II framework is an internationally agreed set of rules for assessing the adequacy of a financial institution's capital reserves in relation to the risk of assets such as loans.

Basel II compliance could force a bank to maintain higher capital reserves than previously, and may also increase costs by requiring greater investment in areas such as IT services. In most countries, those banks that need to comply with the new rules have an early-2007 deadline, while in the US, this has been put back to 2008.

Deposit Limits - Federal law currently restricts individual banks from holding more than 10% of the total deposits in the US. While most banks are not close to this limit, Bank of America, with more than 9% of total US deposits, is urging the government to remove this limitation. Removal of the limit could affect the degree of consolidation in the industry, allowing larger institutions to merge.

M&A Activity - 2006 saw record levels of M&A activity in many industries in the US, with total deal value of approximately $1,500 billion. Activity in Europe was also strong. It is expected that 2007 will see a continuation of this trend. This should provide continued fee income for money center banks involved in the deals.

Significant Trends

Asset-Based Loans - Asset-based loan balances outstanding grew from $117 billion in 1994 to $360 billion in 2006. They involve revolving credit and loans secured on a company's financial and physical assets, such as accounts receivable or land, in contrast to loans based on cash flow, which can impose stricter conditions on a borrower's short-term financial performance. Commercial banks are increasingly offering such loans, in reponse to demand.

Emerging Markets - Commercial banks are increasing their operations in emerging economies such as China and CEE countries. They are seeking to boost their income through interest on substantial loans, the fees associated with IPOs, and the provision of other financial services.

Consolidation - Within the banking sector, consolidation is continuing. For example, late 2006 saw the merger of Bank of New York with Mellon Financial in a $16 billion deal. Larger players are likely to be looking to acquire overseas banks going forward into 2007.

The money center banking industry consists of all banks specializing in international fund transfer as well as those that borrow from and lend to governments, corporations, and other banks. Values quoted refer to commercial banks with substantial involvement in these activities, but may include results of consumer banking and other operations.

Friday, August 31, 2007

Resource Review: Great Lakes Manufacturing Council

Manufacturing needs a lot of help to stay competitive. Businesses and jobs are on the line everyday in this vital sector of our economy. This article is about an important resource trying to help midwestern states cope with the effects of global manufacturing competition. A client of mine, Magnet (Cleveland, Ohio) is an active member of the Council.

The Great Lakes Manufacturing Council is a membership organization representing industry, non-governmental organizations, trade associations, organized labor, educational and financial institutions, economic development groups, chambers of commerce, governments and others united to promote, enhance and preserve manufacturing in the Great Lakes Region.

Goals

To develop and pursue a common agenda that will result in a regional competitive advantage for the Great Lakes region and preserve the prosperity of the region.

To establish shared goals to maintain and increase the competitive advantages of manufacturing in the Great Lakes region.

To develop an effective, interactive network among all stakeholders focused on the success of manufacturing in the Great Lakes region.

To develop, implement and advance the use of best practices throughout the region related to common themes of image, innovation, and logistics & borders.

Resources & Publications

GLMC Forum Report

GLMC Strategic Plan

GLMC March 2006 Presentation

GLMC/CME March 06 Presentation

GLMC June 2005 Tech Ed Summit

Brookings May ‘06 Great Lakes Economic Initiative [PDF Download]

Magnet: Creating an Environment for Innovation in Northeasy Ohio [PDF Download]

Healthy Mind and Body: Fitness and Staying Motivated

Fitness: Staying Motivated

This week's Healthy Mind and Body tip for economic developers is about staying motivated to stick with your fitness program or routine.

Are you having trouble sticking with your fitness program? Have you ever started a fitness program and then quit? If you answer yes, you're not alone. Many people start programs but stop when they get bored or results come too slowly. Stay motivated with these simple tips from the Mayo Clinic in Rochester, Minnesota.

Set goals

Start with simple goals and then progress to longer range goals. Remember to make your goals realistic and achievable. It's easy to get frustrated and give up if your goals are too ambitious.

If you haven't exercised in a while, a short-term goal might be to walk five minutes once or twice a day. An intermediate goal might be to work up to 20 minutes of walking three or four times a week. A long-term goal might be to complete a 10K race.

Consider your personality

If you prefer solitude, walking, biking or in-line skating may be good choices. If group activities are more to your liking, try a class at a local fitness or martial arts center or join a volleyball or softball league. Involve your kids. Walk or bike with a group of friends.

Start slowly

If you push yourself too hard at first, you may be forced to abandon your program because of pain or injury. It's better to start slowly and progress gradually.

Think variety

Vary your activities to keep boredom at bay. Alternate walking or biking with swimming or a low-impact aerobics class. When the weather cooperates, do your flexibility or stretching exercises outside. Play soccer with your kids. Join a health club to broaden your access to different forms of exercise.

Have fun

You're more likely to stick with an exercise program if you're having fun. If you're not enjoying your workouts, try something different. Exercise doesn't have to be drudgery.

Make exercise part of your daily routine

If it's hard to find time for exercise, schedule workouts as you would any other important activity. You can also slip in physical activity throughout the day. Be creative! Take a walk during your child's music lesson. Take the stairs instead of the elevator at work. Pedal a stationary bike while you watch TV at night.

Put it on paper

Are you hoping to lose weight? Boost your energy? Sleep better? Manage a chronic condition? Write it down! Seeing the benefits of regular exercise on paper may help you stay motivated.

Seek support

You're not in this alone. Invite a friend or co-worker to join you when you exercise. Work out with your spouse or your kids. Take a class at a local fitness center.

Track your progress

It may help to keep an exercise diary. Record what you did during each exercise session, how long you exercised and how you felt afterward. Recording your efforts can help you work toward your goals — and remind you that you're making progress.

Reward yourself

After each exercise session, take a few minutes to sit down and relax. Reflect on what you've just accomplished. Savor the good feelings that exercise gives you. This type of internal reward can help you make a long-term commitment to regular exercise.

External rewards can help, too. When you reach a longer range goal, treat yourself to a new pair of walking shoes or new tunes to enjoy while you exercise.

Be flexible

If you're too busy to work out or simply don't feel up to it, take a day or two off. Be gentle with yourself if you need a break. The important thing is to get back on track when you feel better.

Now that you're enthused again, get moving! Set your goals, make it fun and pat yourself on the back from time to time. Review these tips whenever you feel your motivation sliding.

Resources that can help

These three online calculators can help you in setting the right personal fitness goals.

Body Mass Index

Ideal Weight

Calories Burned

Thursday, August 30, 2007

New Book: The Entrepreneurial Society by David Audretsch

How can people and places thrive in a world where jobs can be shipped oversees overnight? Award winning economist David Audretsch offers answers in The Entrepreneurial Society (Oxford University Press).

Audretsch’s first book written for the general audience has been featured in leading newspapers, television, and radio. It is the leading guidebook to understanding how society is transitioning from a managed economy to the new Entrepreneurial Society.

The book identifies the positive, proactive response to globalization – the Entrepreneurial Society, where change is the cutting edge and routine work is inevitably outsourced. Under the managed economy of the Cold War era, governments around the world supported big business, while small business was deemed irrelevant and largely ignored.

A fundamental policy revolution is underway. The focus is shifting to technology and knowledge-based entrepreneurship, where start-ups and small business have emerged as the driving force of innovation, job creation, competitiveness and growth. By understanding the shift from the managed economy to the Entrepreneurial Society, individuals, businesses, and communities can learn how to harness the opportunities afforded by globalization in the new Entrepreneurial Society.

For further information please find attached the flyer for the book; or link to www.davidaudretsch.com. Please direct any questions, or comments to Petra Mader, responsible of Public Affairs at the Max Planck Institute of Economics, mader@econ.mpg.de

Wednesday, August 29, 2007

ED Leader Makes Top 100 Economic Blogs Roll

ED Leader was selected because of its content and traffic as one of the top economic-related blogs. Check out here which websites and blogs made the list.

Business and Industry Intelligence: Gaming and Casinos

Overview

The US casinos and gaming industry generated total revenues of $86.6 billion in 2006, representing an increase of 5.4% on the previous years value. The development of non-gaming business, and the launch of casinos throughout the US beyond their traditional locations, will drive revenue growth moving forward.

Casinos form the largest contributor to net gaming revenues in the US, generating 38% of the total. Lotteries and Indian casinos each contribute an additional 27%.

The 2006 ban on online gaming has dramatically curtailed earnings potential for the major companies, but high consumer demand for gambling services, particularly low denomination slot machines, will ensure strong revenue growth moving forward. At the other end of the market, gaming companies are incorporating luxury retail outlets and restaurants within casino resorts in order to leverage the international reputation of these brands and attract wealthy gamblers.

The leading companies in the US casinos and gaming industry are MGM Mirage, Harrahs Entertainment, Las Vegas Sands, Station Casinos, International Game Technology, and Wynn Resorts. Companies are expanding into the Asia-Pacific market in order to maximize earnings and mitigate against any future fluctuations at home.

Key Issues

Indian Gaming - The number of casinos operated by Native American communities is likely to increase dramatically over the next two years, stiffening the competition in this already highly concentrated industry. In California alone, seven communities have been granted a license to operate a casino but have not as yet opened a facility.

Changing Gambling Habits - Less heavily regulated Class II gaming is increasing in popularity, boosting revenues for the major players. Penny- and other low-denomination slot machines have stimulated earnings growth despite the short-term costs incurred installing the new machines.

Geographical Distribution - The casinos and gaming industry is geographically highly concentrated, with very little brand loyalty. Players must continually invest in innovative marketing programs and new games in order to generate repeat customers, pressurizing margins.

Significant Trends

Added Value - Players are targeting higher-budget customers who drive incremental revenues through the provision of luxury service and exclusive events.

Asia-Pacific - Players are investing in operations in the Asia-Pacific market, where gambling is growing in popularity and the number of premium gaming customers is on the rise.

Property Developments - Casino and gaming companies are diversifying into real estate and retail operations to boost profitability and defend revenue growth from the effects of downturn in any one segment.

Innovation - Video gaming is showing strong growth in the smaller state markets outside Las Vegas. Companies are also installing video slot machines with the capacity to download new games as they are developed, reducing the need for replacement machines. This trend offers significant cost savings in the longer term, as continually replacing machines is more expensive than changing the software.

The casinos and gaming industry consists of all forms of online (if permitted) and traditional betting on sports, lotteries and slot machines, as well as gambling in casinos or bingo halls. The online segments of the sector comprise revenues generated from betting on all formats via the Internet. Market values represent net winnings (amount wagered minus payouts to players) for all operators. Depending on the type of game and its location, net winnings are typically 15-20% of total bets wagered.

Tuesday, August 28, 2007

Des Moines Sees Success from Business Accelerator

Mike Colwell, executive director of Des Moines' BIZ business accelerator, says the nonprofit group plans to improve the probability of success for Iowa entrepreneurs.

BIZ was founded by the Greater Des Moines Partnership, Des Moines Area Community College, the Iowa State University Research Park and the Ames Economic Development Commission. These organizations and the Iowa Department of Economic Development provide the majority of its funding.

"Every entrepreneur is very different," said Curt Nelson, president and chief executive officer of the Entrepreneurial Development Center, a business accelerator in Cedar Rapids. "They have similar sets of needs wrapped around very different capabilities and personalities. "That center assisted 103 entrepreneurs last year. It has helped 21 businesses grow from the idea stage in 2002 to companies with between $100,000 and $8 million in annual revenue by the end of 2006.

The economic development department estimated that 161 businesses were assisted by the expertise of those running the Iowa business accelerators in 2005. Almost 80 of those were directly involved in targeted industries: biosciences, advanced manufacturing and information solutions, and financial services.

Read more here.

Monday, August 27, 2007

Massachusetts Studies Merits of Gaming

Casino gambling isn't legal in Massachusetts, but about 130 people attended a forum last night on the topic to listen to an expert's report on how legalized gaming would positively impact the state and local economy.

There were plenty of questions at the end of the presentation by Clyde W. Barrow, director of the Center for Policy Analysis at the University of Massachusetts Dartmouth and the author of a recent report titled "Maximum Bet: A Preliminary Blueprint for Casino Gaming and Economic Development in Massachusetts." The meeting took place at Chicopee Public Library at the invitation of Mayor Michael D. Bissonnette, who is pushing the aldermen to place a nonbinding referendum question regarding the casino issue on the Nov. 6 ballot.

Barrow's report, based on the assumption that the state will impose a 27 percent tax on gross gaming revenues, highlights the economic impact that three casinos would have on Massachusetts if casino gambling is approved by the state Legislature. He said the casinos would generate approximately $400 million in new revenue for the state and cities and towns in the first year, along with creating about 10,000 construction jobs and more than 10,000 resort casino jobs. Money, approximately 0.25 percent from gross gaming revenues, would be used to address the issue of gambling addiction.

Read more here.

Sunday, August 26, 2007

Arkansas Considers Changes to Gain a Competitive Edge

To better recruit industry to the state, the Arkansas Economic Development Commission will consider, among other things, pursuing a constitutional amendment to remove the restriction on the state investing in private companies.

Details of the agency's economic development efforts in 2006, as well as possible strategies in coming years, were revealed last week in an annual report to legislators that has been required by law since 2002.

The consideration - one of many that also include offering income tax credits to Arkansas companies that recruit their suppliers to the state; providing incentives to companies that hire people with certain doctorate degrees; and exempting native Arkansans from income tax or capital gains tax if they return to the state - is only an idea, not a commitment, said Morris Jenkins, director of AEDC's strategic planning division.

Read more here.