| LAGUNA BEACH July 7, 2010 VOLUME XIII |
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News & Views
Debt Buyers & Sellers Resource
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Editor's Message
Celebrating Independence Day
Gary and I celebrate Independence Day this year with our trip to Washington DC and the National Mall 2 weeks ago, still fresh in our minds. We had a fabulous time experiencing the greatness of these buildings, and what they represent, first hand. The Lincoln Memorial was especially moving, with the context and scale making the humanness of the man feel all the more real to us, and the remembrance of the heavy price paid for equal rights before the law for every citizen in this country, all the more vivid. While the penalties of aging seem to bring emphasis to what is lost, at least from a physical standpoint, what is gained is perspective and an appreciation of the many things we have for so long taken for granted. The uniqueness of our country, its heritage and traditions, have helped define who we are as a people, giving us our values, which, through the many challenges we have faced as a nation, shaped a legacy unparalleled in the history of mankind. We hope your holiday weekend was filled with poignant moments - with family love, and a deep appreciation for the gift of living in America. Though the storm clouds be heavy at this time in our history, we will weather this storm as we have in the past. We are Americans!
This month, Gary takes another look at Unempolyment, since it relates so closely to collections, and whether
things have really improved, in Unemployment at 9.5%: Are We Making Any Progress? He includes the May Charge-offs, as well as a comparison of the purchases and collection results of the public companies who buy debt, in Public Debt Buyers - First Quarter Results. He has also recently decided to expand the Loan Buyers Group and that is explained herein.
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Unemployment at 9.5%: Are We Making Any Progress?
By Gary Baker
The June unemployment numbers were issued on Friday and the new rate is 9.5%. The charts on the Bureau
of Labor Statistics website have not yet been updated to reflect the June numbers. The last chart that shows the state distribution of the unemployment data was for May 2010. These are seasonal adjusted numbers and only include private employment figures. The following chart shows the May unemployment rates for all 50 states.
In addition to the current rates, the 12 month change in unemployment rates by individual states is also available. The following chart displays the changes for the period from May 2009 to May 2010.
These charts above reflect the unemployment data in percentages, which are the numbers we so often hear in the news and read about in many publications. We track unemployment by percentages and in many ways our frame of reference has become limited to these numbers. But there is far more to the job loss story than the unemployment rate. Our population has increased significantly in the past 2 or 3 decades, and what was a high rate of unemployment in the 70's and 80's is much more significant today when we look at the numbers of jobs actually lost. The following map displays the job losses by state from September 2008 to September 2009, and is the most recent data available on the Bureau of Labor Statistics website.
Jobs Lost
Over 7 million private sector jobs have been lost in this 12 month period. While the latest figure for June shows a minor increase of 83,000 workers, there was a net loss of jobs of 125,000 due to the part time census workers being released. At this rate of new job creation, we would be looking at another decade before we could generate new employment for those who lost their job, in just this single twelve month period.
There has been very little borrowing by businesses due to very tight banking restrictions, and a whole new wave of taxation will be starting after January 1, 2011 when many of the past tax reforms will expire. New taxes on health care will also make their debut at the first of the year. Government spending is so far out of control that we have encumbered at least two generations of unborn, to pay down the debt and maybe more than that.
So much has been given to special interest groups, the banks, Wall Street and the politicians all funded by the taxpayer. We need to get our priorities straight and stop supporting the very policy makers and institutions than lead us down this path and redirect out resources to creating real private sector jobs. Give people an opportunity to work, let them recapture the dignity and respect they earn from doing a good job and paying their own way.
Below is a chart created from several pages of information obtained from the Bureau of Labor Statistics. This Table shows the comparison of the unemployment rate in May 2009, the unemployment rate in May 2010 and the 12 month change by state. Also included is the 12 month loss of actual jobs expressed as a percentage and the total number of jobs lost by state, for the period between September 2008 and September 2009, the most recent information available. (With all of the information available at our fingertips these days, it is troubling that the most current jobs lost data is over 9 months old)
Table of Unemployment Rates by State and Jobs Lost By State
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Unemployment %
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12 Month
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Sept. 2008 to Sept 2009
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State
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May
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May
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Net
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12 Month
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Total Jobs
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|
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2009
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2010
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Change
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% Drop
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Lost
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Alabama
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10
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10.8
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0.8
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-7.70%
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-120,250
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Alaska
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7.8
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8.3
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0.5
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-1.80%
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-4,485
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Arizona
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9.2
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9.6
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0.4
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-9.20%
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-196,957
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Arkansas
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7.2
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7.7
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0.5
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-5.00%
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-48,588
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California
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11.3
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12.4
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1.1
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-7.50%
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-980,236
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Colorado
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8.2
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8
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-0.2
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-7.00%
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-136,641
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Connecticut
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8.2
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8.9
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0.7
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-5.20%
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-74,729
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Delaware
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8
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8.8
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0.8
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-5.80%
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-21,015
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District of Columbia
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9.7
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10.4
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0.7
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-3.40%
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-15,644
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Florida
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10.2
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11.7
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1.5
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-7.30%
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-471,325
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Georgia
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9.5
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10.2
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0.7
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-7.50%
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-248,068
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Hawaii
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6.9
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6.6
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-0.3
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-5.80%
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-28,682
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Idaho
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7.7
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9
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1.3
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-7.30%
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-40,204
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Illinois
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10
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10.8
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0.8
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-6.60%
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-332,100
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Indiana
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10.6
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10
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-0.6
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-7.40%
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-182,992
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Iowa
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5.8
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6.8
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1
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-4.50%
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-56,500
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Kansas
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7
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6.5
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-0.5
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-5.30%
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-58,858
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Kentucky
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10.6
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10.4
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-0.2
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-5.70%
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-85,297
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Louisiana
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6.8
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6.9
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0.1
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-3.20%
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-48,441
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Maine
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8.2
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8
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-0.2
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-3.90%
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-20,053
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Maryland
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7
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7.2
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0.2
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-4.30%
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-89,579
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Massachusetts
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8.2
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9.2
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1
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-4.40%
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-126,725
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Michigan
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13.6
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13.6
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0
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-8.70%
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-301,673
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Minnesota
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8.4
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7
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-1.4
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-5.60%
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-129,420
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Mississippi
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9.3
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11.4
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2.1
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-6.20%
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-55,169
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Missouri
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9.4
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9.3
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-0.1
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-5.70%
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-130,120
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Montana
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6
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7.2
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1.2
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-5.10%
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-18,413
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Nebraska
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4.7
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4.9
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0.2
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-3.70%
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-28,510
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Nevada
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11.5
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14
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2.5
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-11.10%
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-121,456
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New Hampshire
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6.3
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6.4
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0.1
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-5.00%
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-27,107
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New Jersey
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9.2
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9.7
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0.5
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-5.00%
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-165,694
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New Mexico
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6.8
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8.4
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1.6
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-6.50%
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-41,624
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New York
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8.4
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8.3
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-0.1
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-4.10%
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-297,035
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North Carolina
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10.9
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10.3
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-0.6
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-7.20%
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-242,247
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North Dakota
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4.4
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3.6
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-0.8
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-1.00%
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-2,946
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Ohio
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10.3
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10.7
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0.4
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-7.10%
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-318,055
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Oklahoma
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6.5
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6.7
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0.2
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-7.40%
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-92,660
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Oregon
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11.6
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10.6
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-1
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-8.10%
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-117,721
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Pennsylvania
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8
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9.1
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1.1
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-4.70%
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-235,343
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Rhode Island
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10.7
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12.3
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1.6
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-5.70%
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-23,698
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South Carolina
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11.7
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11
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-0.7
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-7.70%
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-117,948
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South Dakota
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5
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4.6
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-0.4
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-3.30%
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-10,873
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Tennessee
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10.7
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10.4
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-0.3
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-7.20%
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-166,856
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Texas
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7.5
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8.3
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0.8
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-5.00%
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-436,095
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Utah
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6.8
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7.3
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0.5
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-6.70%
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-68,958
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Vermont
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7.3
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6.2
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-1.1
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-4.80%
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-12,059
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Virginia
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6.8
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7.1
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0.3
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-4.90%
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-147,563
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Washington
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9.1
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9.1
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0
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-5.60%
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-139,574
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West Virginia
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7.9
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8.9
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1
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-4.70%
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-27,301
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Wisconsin
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8.9
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8.2
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-0.7
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-6.30%
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-151,156
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Wyoming
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6.1
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7
|
|
-7.90%
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-18,317
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|
|
|
|
|
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-7,032,960
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Distribution of Unemployment by Age
Unemployment is not distributed evenly among all workers, just as it is not evenly distributed among all states. The following graph shows the unemployment rates for different age groups for the monthly periods between February 2010 and June 2010. The June 2009 figure is a reference date for comparing the overall change in unemployment rates during the past 12 months.
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Unemployment By County
In December we included this link showing a powerful graphic depiction of how unemployment has progressively moved through the country. Although the map hasn't been updated since March 2010, the final picture is still fairly representative of how things look today.
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May Charge-offs
The May charge-off Rates reflect a slight improvement for American Express, Capital One Citigroup and Chase while Bank of America has risen above 13% again, and Discover increased a small amount. The overall industry rate has climbed again to over 11%. In real dollars, the amount of losses for the charged-off accounts has decreased from a year earlier simply because the overall amount of outstanding credit has declined. Charge-off rates are calculated on percentage basis of the current outstanding balances that the banks carry on their books.
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Credit
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Bank
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American
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Capital
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Discover
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JP
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Citigroup
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Credit
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Jobless
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Card
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of
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Express
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One
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Morgan
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Card
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Rate
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Issuer
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America
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|
|
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Chase
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Industry
|
|
|
Feb. 1999
|
|
|
|
|
|
|
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4.4%
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Feb. 2007
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|
|
|
|
|
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4.51%
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4.5%
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Feb. 2008
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|
|
|
|
|
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5.59%
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4.8%
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Aug. 2008
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|
|
|
|
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6.82%
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6.2%
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Feb-09
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8.70%
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8.06%
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6.35%
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9.33%
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8.82%
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8.1%
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Mar-09
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9.31%
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8.80%
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9.33%
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7.39%
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7.13%
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9.66%
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9.30%
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8.5%
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Apr-09
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10.47%
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10.10%
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8.56%
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8.26%
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8.07%
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10.21%
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9.97%
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8.9%
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May-09
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12.50%
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10.40%
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9.41%
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8.91%
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8.36%
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10.50%
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10.62%
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9.4%
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Jun-09
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13.86%
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9.90%
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9.73%
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8.75%
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8.04%
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10.50%
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10.76%
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9.5%
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Jul-09
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13.81%
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8.92%
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9.83%
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8.43%
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7.92%
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10.03%
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10.52%
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9.4%
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Aug-09
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14.54%
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8.50%
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9.32%
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9.16%
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8.73%
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12.14%
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11.49%
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9.7%
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Sep-09
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14.25%
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8.40%
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9.77%
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8.69%
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8.12%
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10.15%
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10.72%
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9.8%
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Oct-09
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13.22%
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7.80%
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9.04%
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8.54%
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8.02%
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8.79%
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9.04%
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10.2%
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Nov-09
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13.00%
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7.60%
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9.60%
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8.98%
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8.81%
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10.29%
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10.56%
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10.0%
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Dec-09
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13.53%
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7.10%
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10.14%
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8.68%
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7.11%
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9.56%
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10.32%
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10.0%
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Jan-10
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13.25%
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7.00%
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10.41%
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8.58%
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10.91%
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9.80%
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11.07%
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9.7%
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Feb-10
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13.51%
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7.40%
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10.19%
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9.11%
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9.21%
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11.29%
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11.08%
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9.7%
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Mar-10
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12.54%
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7.50%
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10.87%
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8.51%
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9.51%
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11.55%
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11.21%
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9.7%
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Apr-10
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12.71%
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6.70%
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9.68%
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8.42%
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9.03%
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11.23%
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10.93%
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9.9%
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May-10
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13.33%
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6.30%
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9.48%
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8.82%
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8.95%
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11.16%
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11.10%
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9.7%
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10-Jun
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|
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9.50%
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Source: Moody's Investment Services, Reuters, Bureau of Labor Statistics
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Public Debt Buyers - First Quarter Results
By Gary Baker
There are 5 public debt buyers in the United States and all trade on the NASDQ exchange. There are also several companies who are larger, both in purchased volume, as well as the number of employees than the five listed here, but they are private firms and little information about their operations is available to the public.
PRAA - Portfolio Recovery Associates, headquarters in Norfolk, VA
ECPG - Encore Capital, headquarters in San Diego, CA
AACC - Asset Acceptance Corp., headquarters in Warren, MI
ASFI - ASTA Funding, Inc., headquarters in Englewood Cliffs, NJ
FCFC- First City Financial Corp., headquarters in Waco, TX
The informational shown in the following charts was obtained from the quarterly SEC filings for each of the companies for the past three quarters.
Stock Price
March of 2009 was the market bottom from the sell-off in the stock market that began in October of 2007. Most of the companies had a nice recovery off the market bottom in March of 2009 and continued fairly strong until September of 2009, and have drifted sideways since. Encore Capital (ECPG) has performed fairly well compared to most, and Portfolio Recovery Associates (PRAA) has significantly outperformed all of the other public buyers. As the economy began to collapse and recovery rates plummeted, many buyers got caught in overpriced forward flow agreements and overpaid for their inventory. The green dashed line is the XLF which is the financial sector tracking stock.
Comparing results to financial performance of the XLF
XLF - The Financial Select Sector SPDR Fund seeks to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index (the Index). The Index includes companies from industries, such as diversified financial services, insurance, commercial banks, capital markets, real estate investment trusts (REITs), consumer finance, thrifts and mortgage finance, and real estate management and development. The Fund utilizes a passive or indexing investment approach to attempt to approximate the investment performance of the Index.
Market Capitalization
The market capitalization is the company value based on the current stock price times the number of shares outstanding. There has been a significant appreciation during the previous three quarters for PRAA.
Portfolios Purchased
Combined, the five public companies have spent about $670 million dollars on portfolio purchases during the past three quarters. The total face value of the purchased portfolios is about $15.5 billion dollars between the five public debt buyers.
Average Purchase Price
The overall average purchase price paid for portfolios has been generally increasing for the last quarter for three of the companies. ECPG has flattened out and the both PRAA and ASFI have risen sharply. The average price for FCFC is not included here since the assets they acquire are far more expensive than the other four firms. For the 3rd quarter 2009, FCFC paid about 17 cents on the dollar for debt. That number increased to 42 cents in the fourth quarter and has climbed again to more than 52 cents in the first quarter of 2010.
Recent sale prices reported by other debt buyers confirm the upward price trend for the near future.
Profit and Loss as Reported by Quarter
Most of the public firms are paying down their debt and credit lines aggressively. Recovery rates continue to be depressed and some of the loans and lines of credit obtained by these large firms are due, and some restructuring of outstanding debt is taking place.
NCO Group, the largest collection agency reported a loss of $24.6 million in the third quarter of 2009 and a loss of $15.3 million in the first quarter of 2010.
Impairment Charges
Portfolios purchased deemed uncollectible are written off. The recent impairment charges reflect a considerable improvement for AACC. ASFI has reported no impairment charges since their year end in September 2009 when the company reported $183.5 million in impairment charges for the year.
Gross Collections
The combined gross collections for all the public debt buyers range from $220 million to $245 million, per quarter. NCO Group, the world's largest collection agency, shows gross collections averaging about $400 million per quarter. NCO employs around 34,000 people, compared to combined total of about 5600 for all of the public debt buyers.
The public companies buy and collect a variety of charged off debt as well as semi-performing receivables and performing loans. All portfolios are purchased at significant discounts from the face value of the loans. Some of the companies utilize in-house collectors while others may outsource a majority of their collections. Legal work is common and recovery time frames have generally been extended to 2 to 3 years, for the return of invested capital.
Given the current challenging conditions and overall economic environment, recovery rates will continue to be impacted for the foreseeable future. These low liquidation numbers should continue to weigh down portfolio prices in the coming quarters, and the well managed firms should continue to squeeze out profits for their shareholders. Overpaying for this debt has led to significant impairment charges for several firms including many of the large private companies. The high jobless rates will continue to challenge the collections of fresh charge-offs, especially the previous high credit score / high wage earner, who is now unemployed looking for any type of work.
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Loan Buyers Group is Expanding
The Loan Buyers Group was formed to allow small and medium sized debt buyers to join together in the purchase of national files of charged-off credit card debt and consumer loans. Every portfolio considered by the Loan Buyers Group is modeled to determine the expected recovery from the accounts based on how similar portfolios are currently liquidating. During the past 6 months, the Loan Buyers Group has acquired about $150 million of charged-off debt for the Members, which represents over 40,000 customer accounts. These accounts are currently being collected for the Group Members.
The Group is expanding to gain additional price advantages from larger purchases and to compete for even larger debt purchases which are coming more available. The Loan Buyers Group generally buys charged-off accounts that are one to two years old, giving the customer some time to recover since charge-off. In addition, the Group also has acquired fresh charge-offs and older debt, and maintains an overall posture of diversification between average balances, issuing bank, agency placement and state distribution. There are no membership fees to join the Loan Buyers Group and there are not any monthly fees paid by the Group Members. Portfolio opportunities are presented to the Group based on the expected performance of the file and participation is granted on a first come first serve basis. The Regular Members also have access to a free Members only conference call that is hosted every two weeks. General industry information, new portfolios and current collections are reviewed with the members.
In addition to the Regular Loan Buyers Group Membership, a Commercial Division has been established for Collection Agencies, Collection Attorneys and larger debt buyers to participate on select files. Commercial Members have the advantage of additional portfolio size and a discounted cost basis and can buy individual states or random splits of national files. The Commercial Division operates differently than the Regular Loan Buyers Group. The Commercial Division members collect their own files either with their in-house or third party collectors, while the Regular Members keep the entire portfolio together and collect as a Group, gaining increased attention by the collection agencies working the file. Both Groups enjoy the benefits of buying larger national files at a discount often the portfolios are coming directly from the issuer.
Please visit our web site for more information about the Loan Buyers Group and contact Gary Baker via email for a membership package.
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Business Funding Sources
Self Directed Retirement Accounts (Published in Volume III)
15 years ago BeneTrends was the first company to introduce the 401(k) self-reliant business funding program. With this IRS approved plan in place, you will have the ability to use your own retirement account start a business or grow your existing business with out incurring taxes, penalties or loan payments. (We have confirmed that your debt buying business is eligible) Contact BeneTrends.
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The Loan Buyers Group was formed to allow smaller Debt Buyers and Collection Agencies to work together to purchase National files of charged-off debt. The group also partners with larger Debt Buyers for larger portfolio acquisitions. For information on how what we do and how to join, visit our new Website at www.loanbuyersgroup.com. Join us on Linked-In .com/Search Groups/"Loan Buyers Group: National Debt Buyers".
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