Maryland Business

These days it seems like every ethnicity, race, effort and disease has its own day, week or month to remind Americans to celebrate these various things during their designated time.

With all of the other deserved items we observe in February — Black History Month, American Heart Month and American History Month — and not so worthy — International Friendship Month or National Embroidery Month — you may have overlooked that we just entered into America Saves Week, which runs through March 1.

I understand the importance of highlighting each culture or educating folks about cardiovascular diseases, the nation’s No. 1 killer, but picking a week to remind people to save their money seems slightly ridiculous.

If people are only reminded to save their money during this week each year, will that really translate into the “financial cushion” that the Independent Community Bankers of America says every American needs?

Don’t get me wrong, the idea that Americans need to put money away to prepare for tough times or save for college tuition is right on, it just seems that the sentiment behind America Saves Week might be better for Americans if it lasted long enough for anyone to take notice.

DANIELLE ULMAN, Business Writer

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The University of Maryland’s Smith School of Business has come out with a timely answer to the question, “What is the future of the U.S. finance industry?”

It’s launching a new master’s program that specializes in finance business, to “prepare students to lead in a financial industry that is being reshaped by greater government regulation and intervention.”

Now laid off Wall Street financiers have a viable option — that’s not interning on the set of Tina Fey’s fictitious comedy show TGS (for you 30 Rock fans).

From the release:

“The global financial crisis has changed the way we think about finance,” said G. “Anand” Anandalingam, dean of the Robert H. Smith School of Business. “Now more than ever there is a need for industry professionals with a solid understanding of evolving financial models for banking and debt management, corporate governance and management.”

Classes begin this fall at the university’s Washington, D.C. campus; the program is designed for part-time students to complete in 15 months, but a year-long accelerated program is also offered. Click here for more information.

JACKIE SAUTER, Web Editor

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We just got a copy of a report about real estate investment trusts in our inbox from Advantus Capital Management titled “Follow the Debt: Public debt markets could predict REITs’ direction,” which predicted, frighteningly, “a staggering amount of real estate debt maturing in 2009.”But it’s not like we didn’t know about this already. Late last year, General Growth Properties, the country’s second-largest mall owner, announced it was selling off every one of its Baltimore retail properties that are worth a dime, plus Faneuil Hall Marketplace in Boston and New York’s South Street Seaport. Plus, there’s the whole recession going on, and it’s not as if anyone related to real estate is going to have an easy time paying the bills this year. It’s like a Baltimore-based real estate broker we know always says — “We build houses around economic activity” — when there’s no economic activity, how do you pay for the house?

One particularly interesting part of the report, however, was this:

The good news is that REITs may have a competitive advantage. Generally, REIT debt leverage ratios going into the cycle were much more manageable than their private commercial real estate counterparts. While the typical REIT had debt to total capitalization of roughly 45 percent, the typical private commercial real estate investor borrowed at loan-to-values (LTV) of 75 percent. With a turnaround in the capital markets, REITs are poised to once again tap into capital, though not as cheaply as in the past.

That means that most publicly-traded REITs are carrying debts that amount to less than half of their market cap, while smaller, private companies borrow quite a bit more than that. In other words, in the future, more big buildings will be owned by large, publicly-traded REITs rather than small, local property investors.

But a recent report by the investment analysts at Stifel Nicolaus sort of contradicts this. Some REITs, like those that specialize in healthcare-related buildings have very low debt-to-capitalization rates, but most others are much more highly-leveraged. ProLogis, the world’s largest warehouse owner, which has 18 properties in the Baltimore-Washington area, has a 73 percent debt-capitalization ratio. Consequently, that company is in trouble — in November, its CEO quit after the company’s shares lost 90 percent of their value in what the Wall Street Journal called “another sign that manufacturers and retailers are becoming more pessimistic about the economy.” Some prominent REITs that focus on office and industrial space, including AMB, Monmouth and Columbia-based Corporate Office Properties Trust, are carrying close to 50 percent or above in debt-capitalization.

“As a practical matter, the REITs have maintained a much higher equity to debt ratio because that was what was determined by Wall Street,” said Joe Casey of the brokerage Cushman & Wakefield’s Baltimore office.

Still — the amount of debt that these companies are carrying is actually quite conservative, compared to other types of investment-based businesses. For example, when investment bank Bear Stearns collapsed last year, its assets were leveraged about 33 times over, meaning its debt-capitalization rate was somewhere north of 3,000 percent.

ROBBIE WHELAN, Business Writer

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While M&T Bank’s name is almost synonymous with the Ravens, M&T Bancorp’s new acquisition Provident Bankshares Corp’s name is very much tied in with another sport in the state — Division III college basketball.

For the last four years, Provident Bank has been the title sponsor of the Pride of Maryland Tournament, a three-day championship played in November between Maryland’s nine Division III teams to crown the state’s Division III basketball champ. (The schools are spread across four conferences — four in the Capital Athletic Conference, three in the Centennial Conference, and one apiece in the Landmark Conference and Allegheny Mountain Collegiate Conference.)

The vision for the tournament began with Bill Nelson, men’s basketball coach at Johns Hopkins University, and Brett Adams, athletic director and men’s basketball coach at Stevenson University, 10 years ago but the idea was stalled by conference scheduling concerns. As the story goes, Nelson and Adams decided to forge ahead while flying out together to the NCAA Division I Championships five years later.

The first tournament was played in 2005 with Provident Bank coming on as the title sponsor the following year.

The bank also sponsors a scholarship associated with the tournament and donates $1,000 to the general scholarship fund of each of the nine schools participating in the tournament, also known as the Provident Pride Tournament.

“Provident’s corporate culture perfectly compliments the ideals that represent Division III basketball,” a tournament description says.

Buffalo, N.Y.-based M&T Bank touts its “long history of civic and charitable support” on its Web site and there are many cases where the parent company absorbs the sponsorship duties of its acquisition. And, in the SEC filing accompanying news of the deal M&T said it would continue “Provident’s charitable contributions.”

But in times when charitable donations are dwindling, will the cost of supporting a “Maryland pride” Division III basketball tournament still be in the best interests of an out-of-state bank?

LIZ FARMER, Business Writer

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Looks like people within the finance industry are expecting the light at the end of the tunnel to be a long way off.

The Bethesda-based Association for Financial Professionals released its 2009 outlook survey today, and the view’s pretty bleak.

Here are some highlights (er, ‘lowlights’):

• 5 out of 6 financial professionals do not expect business to improve in 2009
• 49% expect their organizations to decrease the number of workers they employ over the next year
• 63% believe it will not be until at least mid-year 2009 before the credit markets begin to recover
• 79% of organizations expect to take additional “defensive actions” to conserve cash if short-term credit conditions not improve by mid-year

You can download the full survey from AFP here. (PDF)

JACKIE SAUTER, Web Editor

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In today’s paper, my colleague Danielle Ulman quoted ClearBridge Advisors Chief Investment Officer Hersh Cohen as saying that he doesn’t believe we’re in a crisis comparable to the Great Depression:

“I have a house full of prints from the 1930s, and let me tell you, this is not the 1930s, people were selling apples on the street corner, bread lines…”

Interestingly, Wall Street Journal columnist Peggy Noonan used the same image of apple-sellers — or rather, the lack thereof — to explain why she also thinks all the Great Depression talk is overblown:

“One of the weirdest, most perceptually jarring things about the economic crisis is that everything looks the same. We are told every day and in every news venue that we are in Great Depression II, that we are in a crisis, a cataclysm, a meltdown, the credit crunch from hell, that we will lose millions of jobs, and that the great abundance is over and may never return. Three great investment banks have fallen while a fourth totters, and the Dow Jones Industrial Average has fallen 31% in six months. And yet when you free yourself from media and go outside for a walk, everything looks . . . the same… In the Depression people sold apples on the street. They sold pencils. Angels with dirty faces wore coats too thin and short and shivered in line at the government surplus warehouse.”

Newspapers, airwaves, and web sites are full these days with chatter about where to place the current economic downturn in comparison to others, especially the Great Depression. The number of freelance farmer’s markets on the street may not be the best indicator to answer this question, but then again, it may not be the worst. Apple-seller is, after all, a job, and one of the key indicators of Depression versus Recession is unemployment.

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The U.S. economy has been in a recession for the last year.

If you weren’t sure of the country’s economic status before, the National Bureau of Economic Research announced Monday that the nation fell into a recession after it reached a peak in December 2007.

The group’s Business Cycle Dating Committee — a team of highly regarded economists saddled with the job of making these things official — defined a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators,” in a release.

The recession label should come as no shock to anyone who has picked up a newspaper or watched the news in the past several months — manufacturing and retail sales have slowed and job losses have piled up as companies trimmed excess expenses or shut down altogether.

According to the release, the number of filled jobs reached its high point in December 2007 and has dropped in every month since then.

This is the first recession the country has had since 2001, when the technology industry deflated. The latest economic expansion began in November 2001, and lasted 73 months, well shy of the 120-month record set in the 1990s.

Last month, the Philadelphia Federal Reserve said the U.S. entered a recession in April 2008, which it predicted would last for 14-months, making it one of the longest since the Great Depression in the 1930s.

DANIELLE ULMAN, Business Writer

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When do you think you’ll die?

Will you be happy with the life you lived?

These aren’t my questions. They’re from John E. Girouard, the president of Capital Asset Management Group in Bethesda. He’s also the author of “The Ten Truths of Wealth Creation.”

Apparently, part of Girouard’s retirement planning and financial services work is getting clients to consider those questions people really don’t like to consider.

“‘I begin working with clients by asking them to write their full name and the age at which they guess they will die. Then I ask them to write down the five things they wish they had been known for, had accomplished, had achieved, or been doing in the year before they died.’

“Girouard says this exercise is often sobering, provoking people into converting secret fears into action so that the financial planning process can be geared toward making sure those five important things happen before they die.”

It’s off-putting, but I see the benefit in the process. How about you? Any mountains to climb or seas to cross before shuffling off?

(My current plan is immortality. It’s working so far.)

JOE BACCHUS, Web Specialist

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On the way to work today, I was talking with a co-worker about recessions. Are we actually in one, and, if so, how can we tell?

Most economists say that it can take several months of being in a recession for experts to actually determine that we’re in one, and sometimes we don’t know for sure until well after they’re over.

If you’ve heard and believed forecasts that the economy will bounce back in the second half of the year, Washington Post columnist Steven Pearlstein has some bad news for you.

Unlike some financial gurus (see: Warren Buffet) who say the limping economy and announcements of job cuts are a sure sign that we’re already in a recession, Pearlstein writes in Friday’s Post that the trouble has just begun.

Pearlstein says the only way we can get the economy back in shape is by “letting the dollar fall to its natural level, wringing the excess capacity out of industries that overexpanded during the credit bubble and allowing real estate prices to fall in line with incomes.”

What do you think — are we already in a recession, or is the worst yet to come?

DANIELLE ULMAN, Business Writer

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I try to listen to NPR podcasts regularly. I admit, it’s partly because I feel obligated as a Web-based journalist – but it’s also because the content is top-notch.

I’m a fan of This American Life, a weekly radio program (and cable TV show, now) out of Chicago. (It airs locally on WYPR, Sundays at 4 p.m.) The show excels at what the radio medium is best suited for: storytelling.

But this blog post isn’t about how great TAL is, it’s about a podcast I listened to last weekend (on the treadmill, no less) that knocked my socks off.

A couple weeks ago, TAL did a show entitled “The giant pool of money.” It was in collaboration with NPR news, and it explains the mortgage crisis by talking to the actual people who got everyone into this mess. Or, as they put it, “the human beings who accidentally created the international financial crisis.” You can listen to a promo here.

Now, most – if not all – of the readers of this blog probably understand what a NINA loan or a mortgage-backed security is better than I do, but there’s more to be reaped from the 60-minute episode than a global understanding of how the foreclosure crisis came about.

The show asserts that the subprime crisis has connected the people facing foreclosure and the higher-up finance guys. Along the chain there were bankers, brokers and homeowners, all of whom deluded themselves. During the program, the NPR producers ask (and answer) “How did it even work?” and “What were they thinking?”

This is how you would find out what it felt like to be Mike Gardner, a former bartender-turned-mortgage broker, during the so-called “Valentine’s Day massacre” at Silver State Mortgage, when the Nevada employer defaulted on its loans and, without warning, laid everyone off.

Give it a listen and tell me what you think.

JACKIE SAUTER, Web Editor

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