Holiday Leftovers; Food for Thought for the New Year

Hopefully over the past couple of weeks you were able to find time to take a break from the action to enjoy quality time with family and friends. Here’s to a safe and prosperous New Year.

As we all jump back into our work life routines, here are some nuggets to ponder and potentially act upon:

State and local governments are in trouble
I read that 41 states are facing current or looming deficits according to the Center on Budget and Policy Priorities. The only states in good shape fiscally are Alaska, Montana, Wyoming, North and South Dakota, Nebraska, Texas, Indiana, and West Virginia. Over half the states are resorting to cutting spending, tapping reserves or raising taxes to balance their budgets. Numerous municipalities that rely on state funding are also in turmoil. What a mess! Collection agencies across America may want to consider focusing some attention on collection opportunities that exist in their own region among local and state government agencies.

Business financing may be challenging
The number of institutions on the FDIC’s “Problem List” of banks increased from 117 at the end of the second quarter of 2008 to 171 at the end of the third quarter, representing a nearly 50% increase. For comparison, at the end of the forth quarter of 2007 there were 76 institutions on the list. This number is certain to increase significantly in 2009. Securing financing from local banks will remain challenging for most business owners in the foreseeable future.

IRS collection program still in dispute
Some democrats are pushing for the IRS to stop using collection agencies to recover back taxes, arguing that collecting taxes is inherently a government function and it is important that the administration protect the taxpayers. Protect them from what? From fulfilling the obligations they created in the first place? Sounds more like job protection than taxpayer protection to me. I recommend that the federal government evaluate state-level initiatives for collecting past due taxes as well as the success of the US Department of Education private collection program before making any changes to the IRS program. Maybe instead of retracting they will seek more help from collection professionals.

Industry transactions are still taking place
On the mergers and acquisitions front, at Kaulkin Ginsberg we successfully completed the recapitalization of United Recovery Systems (URS) to Audax Group and management just before the Christmas holiday. URS is a well established and recognized leader in bank card / credit card contingency collections. Audax is a successful private equity group that provides investment capital for middle market companies. Terms of the transaction were not disclosed. This transaction is a positive indication for owners who are contemplating a sale or acquisition in spite of a challenging lender market.

Lenders increasing restrictions on consumer credit cards
Charge off volumes and bad debt levels are increasing in a down economy. This is not surprising. What is worth taking note of is that according to some studies, fewer consumers are signing up for new credit cards and using their credit cards less in recent months. A Federal Reserve survey of 55 domestic banks and 21 branches of foreign banks found that nearly 60% reported stricter lending standards on credit card loans. This should only have a limited and short term effect on placement volumes as creditors are placing higher volumes with third party collection agencies and some are turning to the professionals earlier in the lifecycle of the receivables.

I can go on, but that’s enough for now. Please let us know what you’re experiencing. We’re interested to learn what you think is in store for the coming year.