Parent PLUS Loans | What you need to know before you apply

Johnny C. Taylor Jr.,
president CEO,
Thurgood Marshall College Fund

Five Octobers ago, the Department of Education changed the way it interpreted the definition of adverse credit for the Parent PLUS Loan (PPL) program – which parents and students may use to help pay college expenses.

Under the new definition, delinquencies older than 90 days could result in denial of a PPL. Delinquencies include charge-offs, medical collections, and even issues as simple as late payment for mobile telephone bills.

Across America, an estimated 400,000 students were impacted. But historically Black colleges and universities were disproportionately affected.

It disproportionately impacted HBCUs because 90 percent of our student body relies on loans, explained Johnny Taylor, president and CEO of the Thurgood Marshall College Fund (TMCF.)

TMCF is the only organization representing 300,000 students attending Americas 47 publicly supported historically Black colleges and universities.

They argued about the merits of making this change, but the fact that (they) didnt tell us and we were going to be impacted is problematic, Taylor said.

Taylor still finds it troubling that the four leading advocates for Black education- the Thurgood Marshall Fund, United Negro College Fund, (which awards 10,000 scholarships for students from low- and moderate-income families to attend 900 colleges and universities), the National Association for Equal Opportunity in Higher Education (umbrella organization of the nations Historically Black Colleges and Universities and Predominantly Black Institutions), and the Presidents Board of Advisers on HBCUs-who meet one on one with the secretary of education every quarter, were the last to know.

Taking Action

The next several months saw a drawn out battle with the education department seeking to justify its new policy. By September 2013, the outcry was so great they backed down. They also conceded that Parent PLUS loans default at a significantly lower rate than the federal Stafford loans, the most popular student loan program available to undergraduate and graduate students. Federal Stafford loans offer low, fixed interest rates and subsidized interest to eligible undergraduates.

It doesnt make sense that a parent can get $30,000 for a BMW, but that same parent cant get a Parent PLUS loan, Taylor said.

Meanwhile, wed already lost a class of students. Literally within the middle of their education and they had to drop out. We had seniors, juniors, STEM majors, specific names of people, he added. Our position has always been if youre going to change the rules, do it on a going forward basis, not to students who are already in the program.

But efforts to have students already in the PPL program grandfathered failed.

We pushed for a rule that would let incoming freshmen understand [PPL] is not going be a source of funding to parents with less than good credit. But for students already in school, matriculating and getting ready for graduation, pulling the rug from underneath them is fundamentally unfair. Even if you take the legal requirement that there must be consistency between programs, at least grandfather people who were already in the program, Taylor said.

On Capitol Hill, Congressmen and women said it wasnt a legislative issue. So the education advocates decided, as a last resort, to take the Obama administration to court. Although hundreds of Black parents lined up behind TMCF, UNCF, and NAFEO, and despite having children working jobs, no longer in college, they just werent prepared to see the action through.

I was frustrated obviously, Taylor said. But I could understand the level of pride in the Black community in having an African American president. Even though the community was disproportionately affected, they werent going to support court action. We backed off of it.
But not before laying out what he called the doomsday scenario.

Youre going to wake up four, five, six years from now and its going to show there was a significant drop in enrollment at HBCUs, he warned. The enrollment of African American students has been impacted for years to come. Youre going to have financial problems, higher default rates.

Education, business, and policy

In the end, business leaders interested in the future of education rallied to the funds appeal. Lowes Companies Inc., which operates a chain of retail home improvement and appliance stores in the United States, Canada and Mexico, made an unbudgeted donation of $500,000, swelling the coffers of a gap scholarship program set up to help struggling students and their families who were impacted by PLUS loan changes graduate. The program ran successfully in 2013 and 2014.

Last April, Congressional Black Caucus Members, Rep. Corrine Brown (FL-05) and Rep. Cedric Richmond (LA-02) introduced the Protecting Educational Loans for Underserved Students Act (the PLUS Act), a bill that will restore core credit standards used by the Department of Education (ED) prior to the change to the definition of adverse credit made in 2011.

The bill will also provide additional criteria for determining whether a parent has an adverse credit history and includes a new loan counseling provision to help ensure that parents who receive PLUS Loans fully understand the terms and conditions of the loans and their repayment obligations.

Were continuing the process, Taylor said. Were working on a financial aid literacy education program targeted at 10/11/12th-grade students, first-generation college students and underrepresented students.

Our community has to understand that Uncle Sam doesnt go away; a loan has to be repaid. You cant just walk away. Were having lots of conversations about financial aid literacy. We have to do much better in our community before kids go to college, Taylor said.

The Dos and Donts of College Loans

Tanya Wilkerson, Morgan State University director of financial aid, provides information on ways to pay for education, federal and private student aid options, including aid programs for that specific school.

USBE: What should students know ahead of applying for loans?

Tanya Wilkerson: The first thing students should know about loans are the costs associated with attending their chosen school. How much is tuition? Room and board? Are there any additional costs that will need to be covered, like buying a new computer, books, registration fees, deposits, etc.? Will you be receiving assistance in the form of scholarship, grants or even out of pocket from a family member? After you filled out the FAFSA, what were you awarded and will that cover the costs? Basically, you need to find out what resources will be assisting you with the cost of education, and the remainder is what will be covered in loans. Now that has been determined, you need to know what kind of loan will need. Will a parent, if dependent, be able to take out a Parent PLUS Loan? If not, your only choice is an alternative loan. Most students will need a co-signer. You will need to know if you can get a co-signer before you apply. Students should also know their credit score. Lastly, it is important to understand the basic loan terms, like APR, interest, principal, disbursement, origination fee, etc.

USBE: What should they expect?

TW: Students should expect a process. Applying for loans requires you to fill out forms, get information, and fill out more forms. In the instant age that we are in, peoples expectations are for instantaneous decisions. You may be able to receive that for a Parent PLUS Loan, but alternative loans could ask for more information, such as W2s, employment verification, disclosure statements, promissory notes and other various documents. Students should also expect to get denied. The loan process can be a finicky beast at times; you may have to apply for multiple loans, you may have to find another cosigner or you may have filled out the application wrong and have to start again. I always counsel my students to be prepared to be a little frustrated about the loan process.


– Use the parent or cosigner with the best credit score. Alternative loans interest rates are credit score driven. The better the rate the lower the payment.

– Apply to more than one alternative loan. You have 30 days, from the first loan application, to apply for as many loans as you can. I recommend three to five loans.

– Apply early. Everyone waits to the last moment to apply, so the volume goes up and you have to wait longer. If you apply in June, you should be all set by the end of the month, and can relax for the rest of the summer knowing your school will be paid for.

– Check your credit report and NSLDS to make sure you have the correct loans on file. Schools/lenders can make mistakes. It is in many ways up to you to make sure that no mistake was made. Also getting in the habit of checking your credit will not only help you improve your credit but also help you find any discrepancies earlier.
– Read the fine print!


– Take out more than you need. Loan refunds are helpful but remember you have to pay the loan back; so everything you buy with loan money has an additional cost due to interest being accrued on your loans.

– Go with a lender you have never heard of before. Ask a professional before applying to make sure it is a legitimate resource.

– Wait till the last minute to apply. If you are applying the week before school starts, be prepared to have to wait in lines and have some issues.

– Wait to pay back your student loans. If you can make payments earlier, you should.

– Drop out or fail classes. If you stop school you will start paying within six months. Taking loans out, paying them back and not having a degree is not recommended.

More tips from Thurgood Marshall Fund CEO Johnny Taylor

1. Consider going to community college for the first couple of years – the cost of a four-year degree can be reduced by spending the first two years at a community or junior college or attending college in the state.

2. Be clear on what you want to do when you enroll – college is not an exploration time of life; you dont go to college to find yourself. Dont change majors three times. That means you might not graduate for six to seven years.

3. Think of the consequences before you get a parent or grandparents to co-sign – dont put grandma in a retirement home at risk or leave your parents paying off debt. Understand what parents and grandparents are being subjected to.

4. Mobilize around education- Black lives matter. Black college students matter, 14,000 Black students no longer in school matters.

5. Talk about income disparity – we already know education is a great equalizer. Get literate about financial aid.

City Facing Increased Costs in 2016

Preliminary estimates suggest Sarnia ratepayers could be facing a property tax hike of between 8.1 and 9.8 per cent in 2016.

At a strategic planning session Monday, expense pressures were outlined for city council including $500,000 for the tax stabilization reserve, nearly $400,000 in anticipated WSIB claims, and $250,000 for winter maintenance.

Revenue pressures of reallocating tax revenues for assessment appeals, bingo/lottery license fees, and local improvements will also affect the budget.

Director of Finance Lisa Armstrong says increased spending of up to $2.5-million is a very early estimate that may well change.

2016 is a very difficult year with a number of items that are one-time items.

I think with any budgeting process, there are changes, says Armstrong. Perhaps increases, decreases, etc, as more information becomes known and decisions are made with respect to the items of question.

Armstrong says reports on key issues will be brought to council, as well as a package detailing departmental budgets and a comparison to past years.

Councillor Mike Kelch noted to council that 2016 is in many ways a year of correction.

We are seeing things pop up for next year that we are not seeing every year, says Kelch. I have a lot of faith in the process. It has improved every year we’ve done it, and it will improve again this year.

In another presentation to city council, Water/Sewer Analyst James McNaule informed council on the 10-year reserve plan. Staff say the city remains on track to eliminating debt by 2032.

The city has a $125-million budget this year. Budget deliberations begin on December 1st.

Fitch Affirms First Midwest’s LT IDR at ‘BBB-‘; Outlook Stable

(The following statement was released by the rating agency)
NEW YORK, September 21 (Fitch) Fitch Ratings has affirmed the
long-term Issuer
Default Ratings (IDRs) and Viability Ratings (VRs) of First
Midwest Bancorp
(FMBI) and its primary bank subsidiary, First Midwest Bank, at
BBB-. The
Rating Outlook remains Stable. A complete list of ratings is
provided at the end
of this release.
IDR and VR
The affirmation of FMBIs ratings reflects its continued
reduction of
nonperforming assets, steady operating performance and solid
execution of
several acquisitions at the end of 2014. These strengths are
offset by
relatively high volatility in asset quality metrics through down
credit cycles,
stronger loan portfolio growth than peer institutions, and its
concentration within the Chicagoland region, an area that has a
weaker fiscal and economic profile.
The Stable Outlook reflects Fitchs view that earnings
performance will remain
steady and further growth will be adequately managed in relation
to capital and
the banks overall strategy.
FMBIs non-performing asset (NPA) ratio has improved to 1.22%
over the last 12
months. The level of improvement has outpaced many within
Fitchs rated universe
and is now on the lower end of the community bank peer group.
Nevertheless, NPAs
remain somewhat elevated relative to higher rated banks, and
asset quality
metrics have benefited from limited portfolio seasoning given
the level of
organic growth in recent periods coupled with low debt servicing
requirements in
the current rate environment.
Similarly FMBIs net charge offs have declined in recent periods
but also remain
higher than its peers given the lumpiness of remaining legacy
credits. Fitch
expects the level of NPAs to remain relatively flat or slightly
trend downward
in the near term as management continues to address problem
credits and
ultimately begin to trend upward in the intermediate term as the
commercial loan
portfolios season. This expectation is reflected in todays
rating affirmation
as well as the Stable Outlook.
FMBIs loan portfolio has grown sizeably, albeit still within
expectations, over the last 24 months driven by a mix of
acquisitions and
organic growth. This level of growth outpaces the community bank
peer group but
is relatively consistent with regional institutions in the
Chicagoland region.
Organic growth has predominantly been in the Commercial
Industrial (CI) loan
portfolio and has been driven by FMBIs entrance into several
specialty lending
segments including asset based lending (ABL), healthcare
lending, agribusiness
lending and equipment leasing. While generally viewing FMBIs
balance sheet
diversification as positive, Fitch continues to maintain a
cautious view of
strong CI growth across the industry. Accordingly, Fitch will
continue to
monitor CI loan growth relative to peers and assess any
deterioration in
asset-quality leading indicators.
Fitch anticipates that FMBI will cross the $10 billion asset
threshold in 2016
resulting in FMBI being impacted by the Durbin Amendment as well
as more
strenuous and costly stress testing in following years.
Management has indicated that the after-tax cost of the Durbin
Amendment to be
around $5 million but that the earnings accretion generated by
recent and future
transactions will exceed Durbins impact. Todays affirmation
reflects Fitchs
expectation that management will make measured decisions to
cross over the $10
billion threshold in order to maintain reasonable capital levels
and earnings
FMBI has been able to generate better returns in recent periods
due to lower
credit-related costs and top line revenue growth from the
acquisitions. Through
2Q15, the company generated an ROA of 0.94% while the companys
net interest
margin (NIM) has remained relatively flat. Fitch has observed
some uptick in
fee-revenue generation due to mortgage and wealth management
however, non-interest income as a percentage of total revenue is
expected to
remain in line with that of other community banks at 25%-30%.
Consistent with
Fitchs expectations and general industry trends, reserve
releases are coming to
an end as the reserve level is now at 1.04% of loans (exclusive
of credit marks
on acquired loans).
Fitch anticipates revenue generation for FMBI, as well as other
community banks,
will be challenging in the current operating environment. Fitch
expects FMBI to
maintain an ROA of around 80 bps over the near to medium term
given the current
rate environment, which is slightly below industry and peer
averages. The
expectation is based on continued NIM compression and increasing
credit costs in
light of a normalized reserve level and portfolio seasoning.
FMBI should be well
positioned for a rising rate environment with just over half of
earning assets
carrying a floating rate.
FMBI has a good funding profile. Similar to most in its peer
group and across
the industry, FMBI has reduced its exposure to more volatile
sources of funding
through good core deposit growth enabled by interest rates that
remain at
historical low. The loan-to-deposit ratio of 83% at 2Q15 is down
from more than
95% at YE08 but is expected to rise as loan growth continues and
rates rise
resulting in some deposit run-off. While Fitch expects FMBI and
other banks to
experience deposit run-off once rates rise and economic activity
increases, the
agency does not expect FMBIs overall funding profile to revert
to an outsized
reliance on wholesale funding.
Fitch views FMBIs capital as adequate relative to both its risk
profile and
current ratings. The companys core capital level (measured by
TCE or Fitch Core
Capital) and total capital levels remain lower than higher rated
peers. Fitch
expects the company will maintain its capital at levels
commensurate with its
risk profile, particularly as the balance sheet continues to
FMBI has a Support Rating of 5 and Support Rating Floor of
NF. In Fitchs
view, FMBI is not systemically important and therefore, the
probability of
support is unlikely. The IDRs and VRs do not incorporate any
FMBIs trust preferred stock is notched four levels below its
VR. These ratings
are in accordance with Fitchs criteria and assessment of the
non-performance and loss severity risk profiles. Thus, Fitch has
affirmed these
ratings due to the affirmation of the VR. FMBIs trust preferred
stock is
notched two times from the VR for loss severity, and two times
FMBIs subordinated debt is notched one level below its VR.
These ratings are in
accordance with Fitchs criteria and assessment of the
non-performance and loss severity risk profiles. Thus, Fitch has
affirmed these
ratings due to the affirmation of the VR.
The IDR and VR of FMBI is equalized with its operating company
First Midwest
Bank, reflecting its role as the bank holding company, which is
mandated in the
US to act as a source of strength for its bank subsidiaries.
FMBIs uninsured deposit ratings at the subsidiary banks are
rated one notch
higher than the companys Issuer Default Rating (IDR) and senior
unsecured debt
because US uninsured deposits benefit from depositor
preference. US
depositor preference gives deposit liabilities superior recovery
prospects in
the event of default.
Fitch believes there is limited upside to FMBIs ratings over
the intermediate
term given the banks geographic concentrations, its expected
performance, and balance sheet growth.
Over a longer period of time, Fitch believes there could be
positive rating or
Outlook movement for FMBI. Catalysts for such rating actions
would include
evidence of underwriting standards in-line with higher rated
peers as loan
portfolios season. Further catalysts include the ability to
generate stronger
core profitability measures while maintaining good capital
FMBI has experienced greater than average year-over-year loan
growth in multiple
product lines, some due to acquisitions and some through organic
growth. To the
extent that the bank begins exhibiting adverse credit trends in
these new
product lines which are outside of Fitchs expectations,
negative rating actions
could ensue. Moreover, should wholesale funding revert back to
the level it was
leading up to the crisis, negative pressure could be placed on
FMBIs rating or
Fitchs current rating and Outlook for FMBI incorporate the
expectation that the
bank will continue to maintain adequate levels of capital
through organic
balance sheet growth or in the event of an MA transaction of
Fitch would potentially review FMBIs ratings or Outlook should
capital levels
be managed over-aggressively either though future growth or
shareholder distributions.
The Support Rating and Support Rating Floor are sensitive to
Fitchs assumptions
regarding FMBIs capacity to procure extraordinary support in
case of need.
Hybrid capital issued by FMBI and its subsidiaries are all
notched down from the
VRs of FMBI in accordance with Fitchs assessment of each
respective non-performance and relative loss severity risk
profiles, which vary
considerably. Their ratings are primarily sensitive to any
change in FMBIs VRs.
If FMBI became undercapitalized or increased double leverage
significantly there
is the potential that Fitch could notch the holding company IDR
and VR from the
ratings of the operating companies.
The ratings of long- and short-term deposits issued by FMBI and
its subsidiaries
are primarily sensitive to any change in the companys IDR. This
means that
should a long-term IDR be downgraded, deposit ratings could be
Fitch has affirmed the following ratings with a Stable Outlook:
First Midwest Bancorp, Inc.
–Long-term IDR at BBB-;
–Short-term IDR at F3;
–Viability Rating at bbb-;
–Senior unsecured debt at BBB-;
–Subordinated debt at BB+;
–Support 5;
–Support Floor NF.
First Midwest Bank
–Long-term IDR at BBB-;
–Short-term IDR at F3;
–Long-term deposits at BBB;
–Short-term deposits at F3.
–Viability Rating at bbb-;
–Support 5;
–Support Floor NF.
First Midwest Capital Trust I
–Preferred stock at B+.
Primary Analyst
Bain K. Rumohr, CFA
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
Secondary Analyst
Doriana Gamboa
Senior Director
Committee Chairperson
Justin Fuller, CFA
Senior Director
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908
0540, Email:
Additional information is available on
Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
Related Research
2015 Outlook: US Banks (Growth in a Challenging Rate
US Bank Mergers and Acquisitions — When Will The Catalysts
Kick In?
US Banking Quarterly Comment: 2Q15 (Inflection Point in
US Banks: Implications of an Interest Rate Shock Scenario
US Banks: Liquidity and Deposit Funding
US Basel III and Dodd Frank Act Regulatory Guide
(Applicability of New Bank
Regulations in the US)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form

Solicitation Status
Endorsement Policy


Wall Street’s Takeover Of Peer-to-Peer Lending Almost Complete

Big banks are excellent at creativity and innovation, some of it a legitimate component of the business that helps the economy, and creativity in other areas has proven to be less than beneficial to the economy and market security. This includes finding and exploiting regulatory cracks and arbitrage opportunities, as a recent Financial Times piece observed, applying a sense of historical reflexivity to the recent dominance of the peer-to-peer lending revolution by banks and Hedge Funds.

With peer-to-peer lending, sharp-eyed readers might feel a sense of dÃjà vu

“Sharp-eyed readers might feel a sense of dÃjà vu,” Gillian Tett, US managing editor of the Financial Times observes today. While discussing Wall Street’s ascendancy to dominate several angles of a “peer-to-peer” lending process that was advertised as a method to disintermediate banks, Tett, in a piece titled “The sharing economy is now a playground for Wall Street,” observes what what algorithmic traders might otherwise call a confirmation pattern. A confirmation pattern is a re-occurring event that often ends with the same conclusion. For Tett, the combination of banks operating in regulatory cracks is something that will end in tears.

History suggests that whenever innovation and regulatory arbitrage are combined in an era of ultra cheap money, it often ends in tears — somewhere. If nothing else, that also suggests that policymakers need to find ways to stop activity falling between the regulatory cracks; not least because financiers are endlessly creative at dancing in those gaps.

Peer-to-peer lending operating in regulatory cracks as a business model

While she did not specifically identify it, Tett was peeling back the onion on a highly evolved business model. The idea of using innovations to dance around tough capital rules is hardly new: in the early years of the past decade, banks used structured investment vehicles and collateralised debt obligations in the same way,” she writes, noting a unique relative value strategy. “They also took advantage of cracks in regulatory structures to create products that policymakers could not easily monitor or control (it was unclear, for instance, who was supposed to oversee mortgage derivatives).”

This big bank issue has occurred on a frequent basis and can be tied back to 1998 with a man at the center of assisting in creating big bank “cracks” that can be exploited, one who is also at the center of the peer-to-peer revolution today: Larry Summers.

In 1998 Summers fought hard to punish then CFTC Chair Brooksley Born, who wanted to study unregulated derivatives that would eventually have a significantly negative impact on the economy on more than one occasion. At that point, regulatory confusion and allowing banks to operate in the “cracks” seemed like the point, as the unwritten rules against questioning questionable bank behavior on derivatives were later codified into law in the form of the Commodity Modernization Act of 2000, stripping away common sense derivatives regulations that keep the economy safe for the previous decades.

Big banks and hedge funds now dominate peer-to-peer lending following Summers

Summers was richly rewarded for his dedication to flying the flag of big bank revenues ahead of derivatives regulations. He was appointed US Treasury Secretary in 1999, then after a stint as president of Harvard University and – losing a political battle to become Fed Chair to Janet Yellen – Summers landed in the center of an industry that was operating in the regulatory cracks. Summers joined the Lending Club board of directors on December 13, 2012, well before the firm went public. Summers had found a highly lucrative regulatory crack to exploit. This is where, from one perspective, the big bank influence now wrapping itself around peer-to peer-lending like an octopus shouldn’t come as a surprise. With Summers at the helm, using big bank connections to help build out peer-to-peer lending is just a natural progression.

Community bank adds SBA manufacturing lending

United Community Bank on Friday announced the launch of a manufacturing vertical within its SBA lending business.

The Blairsville, Ga.-based bank hired Paul Pickhardt to run SBA lending focused on manufacturing. Pickhardt will report to Richard Bradshaw, president of specialized lending at the bank. Both are based in Greenville, SC

Buhari, TSA and a wobbling economy

The ongoing controversy stirred by the Single Treasury Account (TSA) policy recently introduced by the Federal Government may take a long time to abate. This apprehension stems from the fact that the policy concerns and touches the heart of the economy as represented by the banking sector. There is no doubt that the banking sector of the Nigerian economy is hard hit by this policy, which many economic analysts believe is obnoxious, draconian and counterproductive.

Since its inauguration on May 29, 2015, the President Muhammadu Buhari administration seems to have a penchant for churning out obnoxious and draconian policies that are symptomatic of the military era which rules by decree and regimental fiat rather than the rule of law enshrined in a democratic setting. The TSA policy, which was introduced by a circular issued by the Head of the Civil Service of the Federation, Danladi Kifasi, on August 7, 2015, directed that all receipts due to the Federal Government or any of its agencies are to be paid into the federal sub-treasury account maintained in the Central Bank of Nigeria (CBN).

The implementation of the TSA, according to the circular, is expected to aid transparency and facilitate compliance with Sections 80 and 162 of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

TSA is a unified structure of bank accounts enabling consolidation and optimal utilization of government’s cash resources. It is a bank account or a set of linked bank accounts through which government transacts all its receipts and payments and gets consolidated view of its cash position at any given time.

The president’s directive is expected to end the previous public accounting situation of several fragmented accounts for government revenues, incomes and receipts, which in the recent past has meant the loss or leakages of legitimate income meant for the federation account. According to experts, TSA consists to concentrate all government funds on one account for its proper management. In other words, it is an instrument put in place to control government finance resources and expenditures. It ensures complete, real time information on government cash resources and improves operational and appropriations control.

The measure, according to the government, is to ensure transparency and accountability in the operations of public accounts.

Also affected by the directive are foreign missions, teaching hospitals, medical centres and federal tertiary institutions. Agencies, like the CBN, Security and Exchange Commission, Corporate Affairs Commission, Nigerian Ports Authority, Nigerian Communications Commission and the Federal Airport Authority of Nigeria are also captured in the directive. Others include the Nigerian Civil Aviation Authority, Nigerian Maritime Administration and Safety Agency, Nigerian Deposit Insurance Corporation, Nigerian National Petroleum Corporation, Federal Inland Revenue Service, Nigerian Customs Service, and the Department of Petroleum Resources.

The president’s directive was in consonance with Section 80 of the 1999 Constitution. Section 80 (1) of the constitution reads, “All revenues or other moneys raised or received by the Federation (not being revenues or other moneys payable under this Constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation.”

But rather than listen to the cry of the people for the government to review the policy considering its negative consequences on the nation’s economy, especially the banking sector, President Buhari applied the big stick by setting a deadline of September 15, 2015 for all ministries, departments and agencies (MDAs) of the Federal Government to comply with the instructions on the TSA or face sanctions.

According to the presidency, “By that deadline, all Federal Government revenues must go into the Central Bank Treasury Single Account (TSA), except otherwise expressly approved.” Kifasi urged the MDAs to ensure strict compliance with the deadline to avoid sanctions.

“In this regard, His Excellency, Mr. President has directed that all MDAs are to comply with the instructions on the Treasury Single Account (TSA) unfailingly by Tuesday, September 15, 2015. Heads of MDAs and other arms of government are enjoined to give this circular the widest circulation and ensure strict compliance to avoid sanctions,” Kifasi wrote.

The TSA policy is already taking its toll on the nation’s economy. The banking system is trembling and faces an inevitable collapse. There are fears that one of the new generation banks may already be teetering on the brink of distress. Fifty-five percent of the bank’s deposit is from the public sector. Last year the bank recorded N22 billion as gross profit. Seventy percent of the profit was realised from treasury bills and other debt instrument of the Federal Government.

The pain of TSA in the banking system is excruciating. TSA would rock the banking system because government is striking at a time when Nigeria’s oil revenue has dwindled precipitously. The immediate impact of TSA on the economy has been largely negative. Inter-bank lending rates shot up by 70 percent the week the policy was announced. The mopping up of huge liquidity in the banking system could not even strengthen the naira. The exchange rate of the naira in the parallel market jumped from N213 to N223 to the dollar. Some of the Bureau de Change (BDC) operators could not mobilise the naira component to pick up their dollar allocations. The scarcity of naira triggered a rather strange scarcity of dollars, just the way excess naira in the system would do. Nigeria’s economy is something of an enigma.

As expected, TSA has escalated lending rates. There are fears that prime lending might be cruising perilously above 21 percent. Endangered species like small and medium enterprises (SMEs) now risk being priced out of the money market. The cost of funds for the perceived high risk ventures might surge above 35 percent.
TSA would almost certainly worsen the bear runs in the capital market. Banks are poised to respond to the liquidity squeeze with a hike in deposit rates that would make returns on investment in equity even more repulsive. Investors in the Nigerian Stock Exchange (NSE) would be tempted to sell their shares and invest in the money market, thus worsening the bear runs in the capital market.

With this backlash on the economy, it is difficult for Nigerians to accept government’s explanation that the introduction of the TSA is not a punitive measure targeted at any government establishment. Is this the change Nigerians voted for? Certainly not.
Asma’u Hassan

The New Empire Builders: China’s Digital Conglomerates

With companies like Baidu, Alibaba and Tencent branching out into new areas, China is witnessing the rise of a new breed of digital conglomerates. 

Jack Ma’s mix of charm, drive and self-deprecation was on display as he addressed the Economic Club of New York in the Grand Ballroom of the Waldorf Astoria in early June. As club members tucked into a lunch of herb-stuffed chicken breast, mushroom risotto and baby zucchini, the Alibaba founder and Executive Chairman breezed through topics that ranged from his days as an English teacher back in 1988 in Hangzhou to the future of his e-commerce powerhouse.

One name stood out though when Ma listed a handful of American businesses he had learned from while nurturing Alibaba. Microsoft and IBM were unsurprising nominations, but it was the mention of General Electric that caught the eye.

With more than a century separating their respective foundings, the industrial conglomerate and China’s largest online retailer would seem to share little in common. One sells power plants and jet engines, while the other is a mix of businesses resembling Amazon, eBay and PayPal. But as Alibaba expands into new areas, it too is beginning to resemble a conglomerate, and it is not alone.

Gone are the days when China’s three biggest internet companies peacefully coexisted in separate domains: Baidu in online search, Alibaba in e-commerce, and Tencent Holdings in social networking services. Now, China’s troika of dotcom titans–BAT for short–are locking horns by using their financial power to muscle into each other’s territories, taking capital stakes and forging business partnerships in aggressive bids to expand beyond their own backyards. They have spread into an at times bewildering array of new sectors, ranging from finance and film production to soccer clubs and gaming.

The three companies’ investment frenzy–estimated by Credit Suisse at $15 billion in one year and 90% of the Chinese total–is aimed at making them an even more central part of Chinese consumers’ digital lives. “It’s all linking back to the fact these guys are platform companies. They move quickly. They’re certainly moving more quickly than their traditional counterparts,” says Michael Clendenin, Managing Director of Shanghai-based RedTech Advisors.

“There’s a lot of hype in China about building a platform, especially among the internet companies,” says Jonathan Zhou, a senior e-commerce and mobile internet analyst for Pacific Epoch, a tech research firm in Shanghai. “They all want to become a so-called platform business. It doesn’t mean all will succeed.”

The explosion of smartphone usage in China with the arrival of the mobile internet has also played a part, according to Duncan Clark, Chairman of consulting firm BDA China and the author of Alibaba: The House That Jack Ma Built, to be published next year.

“BAT are all focused on mobile,” says Clark. “It’s the future–approaching half of Alibaba’s business for example. So this brings them in competition with each other. The former silos in the PC world of e-commerce, search and games no longer apply.”

BAT are leading the charge for diversification but minnows are catching on too. Chinese online entertainment giant LeTV wants to expand into sports, smart cars and cloud computing (and has already launched smartphones and a smartbike), while Xiaomi has already moved beyond the inexpensive smartphones where it made its name to home appliances such as power strips, bedside lamps and air purifiers.

Out of Step?

China’s digital and internet companies are inching towards becoming conglomerates, when such giant sprawling companies went out of fashion in the West decades ago. “I think conglomerates are pretty much out of vogue in the United States and Western economies, but they seem to be the fashion in China,” says Michael Pettis, a professor of finance at Guanghua School of Management at Peking University in Beijing.

They have strong roots in Asia. Ancient family monopolies known as zaibatsu controlled swathes of Imperial Japan’s economy. Today, the likes of Mitsubishi, Mitsui and other post-World War II keiretsu–literally ‘headless combine’–hold similar sway over Japanese industry and represent the country’s traditional business model. South Korea’s economy is dominated by numerous so-called chaebols–family-owned business houses that include household names such as Samsung, LG and Hyundai.

In the decade up to 2010, non-state owned conglomerates in China made up about 40% of the largest 50 companies by revenue, according to McKinsey. In South Korea, where chaebols are deeply embedded in the national psyche, they accounted for 80%. Over the same 10 years, private and independent Chinese conglomerates expanded into 65 new businesses, while Korean companies entered 119 new sectors.

Conglomerates are an integral aspect of Asia’s emerging markets too. In Indonesia, the family-owned Lippo Group has invested in everything from department stores and groceries to internet services and hospitals, while Astra International is a leader in automotives and infrastructure. Thailand’s largest private company, CP Group, does business in agriculture and insurance.

Hulking state firms have long dominated China’s economy, with a tendency to monopolize a single sector, such as energy, banking or railways. But there are also diversified groups both state-owned and independent that are prominent across a range of sectors. State-run CITIC Group is China’s largest conglomerate with holdings in finance, resources and real estate. Then there is privately owned Wanda Group–operating in 10 areas including cinemas, commercial property and theme parks–and Fosun International, China’s largest private conglomerate, which is involved in pharmaceuticals, insurance, steel and real estate.

Both Wanda and Fosun have gone on aggressive spending sprees in recent years to build new, income-generating businesses. Wanda paid $2.6 billion for the AMC cinema chain in 2012 and $1.6 billion for British yacht maker Sunseeker a year later, while Fosun completed its long-running $1.1 billion buyout of France-based resort operator Club Med deal in February, and then in March brought a 5% stake in holiday provider Thomas Cook for $140 million. It has also spent heavily on insurance and banking assets in Germany, Belgium and Portugal–including last year’s $1.5 billion acquisition of Portugal’s largest insurer.

Spreading Their Wings

China’s dotcoms are now emerging as the next generation of conglomerates for the digital age. They have expanded into a broad set of businesses that sometimes have strong linkages to their roots–and are at other times totally unrelated–in an effort to diversify their user base and business model. “The lines between what their core business used to be and what it will be in the future are quickly blurring,” says Clendenin. “In many of these cases, the new areas that they’re pushing into are quite related to their core business.”

Lending Club Launches In Three More US States

Lending Club, the online peer-to-peer lending platform, said Friday (Sept. 18) that it is expanding its reach domestically, adding three states to its roster.

The company said that it now serves retail investors in Nebraska, Indiana and Kansas, bringing its roster of states served to 36, according to a release. The platform links borrowers and investors.

In a statement detailing the expansion, Lending Club Founder and CEO Renaud Laplanche said that “in a time of market volatility, and with uncertainty about future interest rate fluctuations making other fixed income investments less predictable, Lending Club’s retail investors have continued to enjoy returns averaging 5 to 8 percent annually since inception in 2007. We are excited to offer this investment opportunity to investors in more states.

Under the current business model, Lending Club lets individual retail investors access consumer credit, investing in loans in increments of $25 and above. That allows for diversification across thousands of borrowers, which in turn lets investors build customized and risk-specific portfolios.

Bridge Bank Launches Life Sciences Group

Bridge Bank announced the launch of a new banking group — Life Sciences Group (LSG) — which will offer customized financial solutions to companies operating in the life sciences sector, including within the biotech, medical devices and pharma verticals. The Life Sciences Group will focus on providing term and revolving debt to life sciences companies for a variety of purposes including growth and working capital, refinancing, restructuring, recapitalization, as well as for financing mergers and acquisitions. In addition to providing tailored credit solutions, LSG will offer the full complement of Bridge Banks financial solutions including treasury management and international banking services.

Life sciences companies often face a unique set of uncertainties, said Thomas A. Sa, executive vice president and head of Bridge Banks business lines. With our experience as a leading lender to technology companies who face their own unique challenges, and the addition of Robert Lake and his teams track record, we are well-positioned to help life sciences companies navigate those uncertainties, allowing them to stay focused on the development, approval and growth of their products, added Sa.

Based in San Diego and offering financial solutions to companies nationwide, Bridge Banks Life Sciences Group will be led by Robert Lake, a veteran lender with nearly 20 years of commercial lending experience specializing in venture-backed life sciences, technology and healthcare services companies. Before joining Bridge Bank, Lake was executive director at Oxford Finance LLC where he managed and assisted in the growth of the firms portfolio in the western regions of North America. Lake has also held leadership positions at Silicon Valley Bank, Fifth Third Bank and the American Medical Association.

Bridge Bank has built a superior platform and reputation, having banked a portfolio of high-profile tech companies throughout the country, said Robert Lake, senior vice president and head of Bridge Banks Life Sciences Group. The opportunity to extend the Bridge Bank brand into the life sciences sector is tremendous, and the synergies across the banks business lines will represent a true value-add to our life science clients, added Lake.

Bridge Bank also recently announced the formation of its Equity Fund Resources group, whose purpose is to develop an eco-system of centralized resources to both private investors and Bridge Bank clients, including life sciences companies.

Bridge Bank is a division of Western Alliance Bank, the go-to-bank for business in its growing markets. Bridge Bank was founded in 2001 in Silicon Valley to offer a better way to bank for small-market and middle-market businesses from across many industries, as well as emerging technology companies and the private equity community.