Hunting for Capital
It's out there if you know how to get it, Ratajczak tells SOI Summit attendees
CHICAGO -- Don't ask Don Ratajczak when things will go back to normal. In his line of work, as consulting economist at Morgan Keegan & Co., "the old normal is never going to happen." During Wednesday's general session at the 2009 NACS State of the Industry Summit in partnership with CSP, Ratajczak traced the missteps that brought us to the crisis we're in today: a housing market accelerating faster than the rate of inflation, money lent on collateral instead of character, artificial demand, collateralized debt obligations, credit default swaps, false security and, finally, [image-nocss] the present, where there is no money to lend, dead commercial paper, deader banks and healthy lenders that are struggling under the weight of "the trash they were asked to buy."
"The world does not have enough lending power right now to create the world of a year ago," said Ratajczak (pictured). "It's not there anymore."
Ratajczak told attendees gathered in Chicago that while he believes the convenience store and petroleum industry will have a good year, retailers will still have to hunt for capital.
Despite the banking crisis, he said, the equity market is opening up, decent commercial paper actually lent on ability-to-pay is floating around and there are in fact opportunities for retailers to access capital by finding those banks that have the capacity to lend.
He suggests looking to community banks that are taking Troubled Assets Relief Program (TARP) money, "who have five years to make loans to pay back the TARP they've taken."
Retailers are also in a position to negotiate a better deal with their bank if they have been given a different offer from another lender.
And just as banks are leery of whom they loan to, retailers should be confident in the bank they are borrowing from. Ratajczak encourages applying the "Texas ratio" to a bank to determine its own strength: divide the value of the lender's nonperforming assets (nonperforming loans plus real estate) by its tangible equity capital plus loan loss reserves. Look for banks with a ratio under 50% and steer clear of banks at or above 100%, as they are nearing failure.
Ratajczak reminded attendees of all the positive data from earlier sessions--that convenience is one of the few retail segments doing well, and that profit opportunities such as foodservice are just waiting to be harnessed by committed retailers. Still, he said, you must remain realistic: "Even if you had the best year ever last year, your value probably went down because we were using so much borrowed money. Remember, everything you own is overpriced."Click on the links below for previous SOI Summit 2009 coverage, and see this issue of CSP Daily News for additional coverage:
NACS SOI survey presents opportunities to grow amid the economic malaise
Keep Your Powder Dry
It may get worse before it gets better, Zimmermann tells SOI Summit attendees
Economy of Need
Convenience retailers should capitalize on one of the most basic consumer needs: food