The Big Boys Get Different Rules

The statement in the title of this entry should come as a surprise to no one, but the Wall Street Journal provided us a reminder yesterday of just how different those rules are.

Businesses have always purchased life and disability insurance on their executives and key employees.  That just makes good business sense.  The loss of such a person puts a serious dent in operations.

Now suppose you have a small business.  You might think all your employees are key, and there's some merit to that.  It's certain, though, that you have an employee or two other than management who are crucial.  Where would you be without that secretary who knows all the "informal" procedures and can get that vendor to deliver tonight instead of tomorrow?  She's definitely key to your operation, but if tried to insure her, the insurance companies would tell you that you don't have an insurable interest and reject you.

That isn't what they tell the big boys, though.  Outfits like Bank of America, Chase, AIG, and yes, even dear old Zions routinely insure not only their executives but their lackeys and spear-carriers and use the proceeds to fund executive compensation (Check the Journal article I've linked to for information on a case a Zions subsidiary is embroiled in.).

Let's face it, folks, the system is broken, an no one who's been allowed to have a set of tools is inclined to fix it.  Running the game with two sets of rules is bad.  Enhancing revenue by betting on employees' deaths is worse (Not to mention the conflicts of interest.  I wonder how many of those deaths were caused by work-related risks?).  Using that revenue to fund executive perks is off the charts.

Junk in the Trunk

As I pointed out on 8 October and again on 14 January, Zions Bank is feeling the pain.  It seems I'm not alone in that assessment.  Moody's has downgraded Zions' senior debt to junk status.  S&P cut the credit rating to the bottom of investment grade, but how long that will hold is a good question.  Zions simply has too much garbage on its books, both self-acquired and forced on it by the FDIC.  Zions has had to acquire several of the FDIC's regional problem children; Zions could well be the next problem child.  Perhaps Utah needs to get used to not having an independent, local bank.

Small Business Status

Things are definitely rough out there for small businesses.  The Zions Bank Small Business Index has dropped to its lowest point ever, and everyone expects things to get rougher this year.

But as I've pointed out here and in Utah CEO, just how secure is your job?  Look at the big companies closing down.  Flying J is the 16th largest privately held company in the country, but it was forced to file bankruptcy because its creditors started calling in their markers.  Job cuts can, and will, strike anywhere.  Build an ark now.

Lots of people are starting their own businesses, typically out of necessity (such as the most recent position on their resume being at Lehman Brothers).  They identify something they can produce or market that people will pay for, and they go for it.  You should too.

Try to keep the start-up borrowing as low as possible.  Shoot for zero.  If you need some, it's out there, but it's getting scarcer, so expect to fight for it.  For example, Zions has been the biggest small business lender around here, but it also is Flying J's biggest creditor and owns the mess that is SunCrest, and that just can't help the loan pool any.

Choosing a Bank

This used to be a fairly simple process. Convenient location probably dictated your choice. Maybe you knew somebody at the branch. If you were really interested, you'd check interest rates and fees.

Not so simple any more. Now you have to worry about whether the bank is going belly-up.

Case in point. I've banked at Washington Mutual for years. Now it's gone, swallowed by Chase. Now I could stay, and turn into a Chase customer, except that I don't like Chase and don't trust it any farther than I can drop kick an anvil. So I'm shopping.

The obvious choice around here is Zions Bank. But I'm not going to go with the obvious choice. Some people out there are saying, "Oh, it's because you're not LDS." That has nothing to do with it. Zions doesn't care about my religious affiliation, and I don't care about its. My concerns are strictly what any business person's should be when making such a decision: business.

Zions has made a lot of loans. If SunCrest is any indication, a lot of those loans are garbage. I know there is a substantial amount of collateral tied up by the ANB receivership because ANB and Zions have the same collateral. That isn't good.

Zions also seems to have become the FDIC's local go-to guy for buying up problem banks, Silver States being the latest example. The FDIC's demands for those services are about to go up, and the value of the takeovers is about to go down. I'm wondering if Zions will find a way to just say "No."

Finally, Zions has engaged in some creative accounting, as evidenced recently by its having to pull off-books investments back onto the books. How can I tell what its liabilities actually look like?

If you aren't going through an analysis like this, you're asking for it. It simply isn't simple any more.