C.M.O. 5.6.2009

Credit Market Overview
May 6, 2009

Ever since Bear Stearns was medivac’d to the intensely expansive care unit at J.P. Morgan the markets have had to contend with processing not only the abnormal changes brought on by a global financial system moving quickly from Code Blue to Code Black (the latter being a D.O.A. without the O.A.) but the ad-hoc efforts of the Federal rescesitators trying any number of methods and approaches to keep the global economy from flat lining.

I have tried, in that time; to relate how changes on the credit side of things were affecting things on the equity side. I might have also slipped once or twice in the process with a snide remark on any given initiative’s purpose or actual effectiveness versus the spiel given to sell it to the taxpayers or the leaders of other nations.

As such and in the spirit of callin’em like I sees’em there were some interesting announcements this week that I think are worth relating here as they pertain to the credit markets and the possible first warm rays of sun they are feeling even as we here in New York slog through weather that seems more appropriate for early March than early May.

The news that really caught my eye was the release of lending numbers for the Small Business Administration. Some of these are for the period from January to mid-March which, given that we hadn’t even hit the lows in the stock indexes yet, make them all that more impressive.

The bellwether category for SBA loans is the 7(a) program. For this type of loan the average number of approvals has risen 28% to 796 totaling $796MM from 622 loans totaling $117.9MM in January. Additionally, since the mid-March date SBA administrator Karen Gordon Mills says the volume of new loans has risen another 20% to about $1.3BN. “We’re looking at that as certainly not conclusive that everything is fixed, but we may be turning a corner” SBA spokesperson Mike Stamler said.

Some of these SBA loans are bought and sold on GovGex.com an online secondary market exchange for bundled SBA-backed loans. According to the Government Accounting Office 35% of the loans approved in the 7(a) program were traded on the exchange in February up from 24% in January. To give you a bit of perspective, 45% of these same such loans were traded during the September 2007 – September 2008 period. Giving the quantitatively inclined a shiver you might say we’re halfway back from Code Black. Also encouraging is that the number of bids per loan has more than doubled to about 6.7 since mid-March.

The increase in volume and activity can be attributed to a few things including a mid-March speech by President Obama’s in which he indicated the allocation of up to $15BN in federal funds to unfreeze the secondary market for these loans as well as a temporary reduction in the fees paid by small business borrowers and an increase in the federal guarantee of these loans from 85% to 90%.

I don’t have the stat’s handy at the moment but we’ve all read the percentage of people employed by small businesses and the ripple effects (I’m talking positive here folks.) that growth in small businesses can have on the community and the economy as whole.

Beyond that any sign of credit moving more freely has got to be welcomed.

Enjoy the week.

Jim Delaney