Remingtons Bankruptcy May Be the Tip of the Iceberg

Firearms companies face declining sales, falling stock prices and tremendous debt. Gunmaker American Outdoor Brands Corp., formerly known as Smith & Wesson, has seen its stock plummet by almost half from 2017. On Monday, Remington Outdoor Co., an iconic, 200-year-old American firearms manufacturer, announced it’s planning to file for bankruptcy.  

With Republicans in control of Washington, there’s little chance of firearm regulation—even in the face of Wednesday’s massacre in Florida. When Barack Obama was president or Democrats controlled Congress, gun sales would generally rise after a mass shooting for fear of more restrictive laws. The gun lobby pushed these worries despite a lack of significant legislative effort by the Obama administration. Now that Donald Trump is in the Oval Office, fear of new gun laws has receded, industry executives have said. And so have sales, hurting both retailers and manufacturers such as Remington.

In December, James Debney, chief executive officer of American Outdoor, said “fear-based” buying of firearms had stopped. According to data collected by the FBI’s National Instant Criminal Background Check System, a barometer for firearms sales, January 2018 was the slowest in gun purchases since 2012. Even on Thursday, after gunmaker stocks rose in premarket trading, shares headed back down by afternoon. (The assault rifle used in the Parkland high school attack was a Smith & Wesson AR-15, police said.)

Following gun stores and manufacturers, the next victim of the industry’s political success could be distributors. Because most are privately owned, earnings data are hard to come by. Still, company debt can offer a glimpse into their financial health. The declining performance of a $140 million loan to distributor United Sporting Cos., for example, suggests there may be a problem. 

United is a private equity-owned holding company whose subsidiaries include Ellett Brothers and Jerry’s Sport Center, two gun distributors that work with more than 30,000 independent retailers across all 50 states (Sturm, Ruger & Co. says 15 percent of its sales are to the two subsidiaries). They distribute hunting and shooting-sports products, including handguns, ammunition, silencers and holsters. In 2016, Jerry’s was named “distributor of the year” by Marlin Firearms, a company owned by Remington.

A $140 million loan extended to United fell to less than half of its face value last year, according to U.S. Securities and Exchange Commission filings by the loan’s holder, the business development company Prospect Capital Corp. 

Since Prospect makes loans to private companies but has issued shares to the public, it’s required to disclose its financials, even when the companies on the hook for the loan are not. In Prospect’s annual report for 2017, the company said a fair value of its loan to United was almost $47 million—about 33 percent of its face value. That was down from 94 percent in its report for the quarter ended March 31, 2017.

Michael Grier Eliasek, a director of Prospect, said in the securities filing that United had been hit by a cyclical slowdown in gun sales, as well as by the bankruptcy of a major customer, sporting goods retailer Gander Mountain. 

United and Prospect didn’t immediately respond to requests for comment.

“When there are elections that go a certain way, there tends to be a slowdown in sales to the firearms sector for the first six or nine months or so, and then there’s a more of a normalization thereafter,” Eliasek said in an August conference call when he was asked about the writedown, which at that time was 59 percent of face value. 

    Read more: http://www.bloomberg.com/news/articles/2018-02-16/remington-s-bankruptcy-may-be-the-tip-of-the-iceberg

    Trump Proposes to Cut Medicare and Spend Big on Wall, Defense

    President Donald Trump will propose cutting entitlement programs by $1.7 trillion, including Medicare, in a fiscal 2019 budget that seeks billions of dollars to build a border wall, improve veterans’ health care and combat opioid abuse and that is likely to be all but ignored by Congress.

    The entitlement cuts over a decade are included in a White House summary of the budget obtained by Bloomberg News. The document says that the budget will propose cutting spending on Medicare, the health program for the elderly and disabled, by $237 billion but doesn’t specify other mandatory programs that would face reductions, a category that also includes Social Security, Medicaid, food stamps, welfare and agricultural subsidies.

    The Medicare cut wouldn’t affect the program’s coverage or benefits, according to the document. The budget will also call for annual 2 percent cuts to non-defense domestic spending beginning “after 2019.’

    At a time when the prospect of rising annual budget shortfalls has spooked financial markets, the White House said in a statement — without explanation — that its plan would cut the federal deficit by $3 trillion over 10 years and reduce debt as a percentage of gross domestic product. Yet, in a break from a longstanding Republican goal, the plan won’t balance the budget in 10 years, according to a person familiar with the proposal.

    The budget, to be released later on Monday, is unlikely to gain traction on Capitol Hill. Lawmakers routinely ignore the spending requests required annually from the executive branch. And Congress passed its own spending bill on Friday, including a two-year budget deal, which the president signed into law.

    According to the summary, Trump will urge an increase in defense spending to $716 billion and a 2.6 percent pay raise for troops. He will request $18 billion to build a wall on the Mexican border, the summary indicates.

    The White House also seeks $200 billion for the infrastructure proposal the administration plans to unveil alongside the fiscal year 2019 budget, as well as new regulatory cuts.

    “This will be a big week for Infrastructure,” Trump said in a Twitter message Monday. “After so stupidly spending $7 trillion in the Middle East, it is now time to start investing in OUR Country!”

    Monday’s document will outline proposed spending reforms the administration says would, if enacted, cut deficits over the next decade — even as recently passed tax legislation and spending caps threaten to drive future annual deficits above $1 trillion.

    Trump May Struggle on $1 Trillion Pledge to Fix Crumbling U.S.

    “Just like every American family, the budget makes hard choices: fund what we must, cut where we can, and reduce what we borrow,” Office of Management and Budget Director Mick Mulvaney said in a statement. “It’s with respect for the hard work of the American people that we spend their tax dollars efficiently, effectively, and with accountability.”

    A year ago, Trump asked lawmakers to cut $3.6 trillion in federal spending over the next ten years, and identified deep cuts to domestic spending programs. Instead, lawmakers last week passed a two-year government funding deal that would boost military and non-defense spending by $300 billion over the next two years and add more than $80 billion in disaster relief.

    But administration officials argue their proposals, dead on arrival though they may be, is still an important marker of the president’s legislative priorities.

    Immigration Enforcement

    The plan includes a heavy emphasis on immigration enforcement. Trump is requesting $782 million to hire 2,750 new border and immigration officers, and $2.7 billion to detain people in the country illegally. Trump is also asking for $18 billion over the next two fiscal years toward the goal of constructing a wall on the U.S. border with Mexico. That’s a key point of contention in the ongoing legislative battle over the fate of young people, known as “Dreamers,” who were brought to the country illegally as children.

    The proposal also includes $13 billion in new funding to combat the opioid epidemic, which Trump has frequently cited as among his top domestic priorities. The administration would provide a $3 billion boost to the Department of Health and Human Services in the next fiscal year, and $10 billion in 2019.

    The proposal takes “money that the Democrats want to put to these social programs and move it to things like infrastructure, move it to things like opioid relief, move it to things that are in line with the president’s priorities so that if it does get spent, at least it get spent to the right places,” Mulvaney said Sunday during an appearance on Fox News Sunday.

    Boost for Veterans

    Other elements include $85.5 billion in discretionary funding for veterans health services, education, and vocational rehabilitation, the OMB said on Sunday. It is not clear how much of that funding would represent an increase from current spending levels.

    The budget also includes $200 billion in federal funds over the next decade that the White House says would spur $1.5 trillion in infrastructure spending through partnerships with state and local governments and private developers. That includes $21 billion over the next two years that the White House says would “jump start key elements of the infrastructure initiative.”

    Trump will discuss the public works proposal on Monday with governors, mayors, state legislators and other officials, and he expects to meet with Congressional leaders from both parties at the White House on Feb. 14. The president plans to visit Orlando, Florida, on Feb. 16 for an infrastructure event, and he and cabinet members will also promote the plan at events around the U.S., officials said.

    The White House said its initial approach is to offset the $200 billion in the budget for its infrastructure plan with spending cuts elsewhere, including from some transit and transportation programs the administration doesn’t think have been spent effectively. But Trump is open to new sources of funding, a senior White House official told reporters.

    ‘Robust’ Defense

    The White House also didn’t detail how much money it wanted to devote to new spending on the military, but OMB said the proposal would provide “for a robust and rebuilt national defense.” In last year’s budget proposal, Trump called for a $52.3 billion boost for the Defense Department, while asking for deep cuts to the Environmental Protection Agency, State Department, and Department of Health and Human Services.

    Mulvaney said this year’s documents — theoretical though they may be — would see those agencies targeted again for budget cuts.

    “There’s still going to be the president’s priorities as we seek to spend the money consistently with our priorities, not with the priorities that were reflected most by the Democrats in Congress,” he told Fox News.

    Trump on Friday complained on Twitter that in order to boost military spending, “we were forced to increase spending on things we do not like or want.”

    The budget proposal assumes that the U.S. economy will ramp up over the next decade to his goal of 3 percent growth, according to an administration official on Friday who confirmed figures to be contained in Monday’s budget proposal. Economic growth is projected at 3.2 percent in 2019 and 2020.

      Read more: http://www.bloomberg.com/news/articles/2018-02-12/trump-to-urge-wall-opioid-spending-as-congress-sets-own-course

      Key GOP Senator Susan Collins Lays Out Her Demands for Tax Bill

      Republican Senator Susan Collins of Maine said Monday she’s opposed to two tax breaks for the wealthy that her party leaders are pushing for, indicating that her vote won’t be easy to win on President Donald Trump’s top legislative priority.

      “I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year,” Collins said during an interview with Bloomberg News. “I don’t think there’s any need to eliminate the estate tax.”

      Repealing the estate tax and cutting the individual rate from 39.6 percent for top earners “concern me,” she said, adding that she’s conveyed her opposition to party leaders.

      Collins, a moderate Republican who played a decisive role in thwarting several iterations of Obamacare replacement legislation, offered her most pointed comments on her priorities for a tax bill to date.

      She added that the structure of the estate tax — a 40 percent levy applied to estates worth more than $5.49 million for individuals or $10.98 million for couples — means it avoids hitting “the vast majority of family-owned businesses and farms and ranches.” She said she’s open to adjusting the cutoff level slightly upward.

      The White House and GOP leaders released a tax framework last month that calls for a top individual rate of 35 percent and leaves room for tax committees to add another rate above that. It also proposes the repeal of the estate tax. The House Ways and Means Committee is scheduled to release its version of a tax bill on Wednesday. Collins said the Senate will likely offer a tax bill that differs from the House version.

      Collins’s demands are important because Republicans have only 52 seats in the 100-member Senate and little hope of Democratic support — they can’t afford to lose more than two members to get a bill passed. 

      Still, she said: “There is far more outreach on the tax bill” than there was on health care.

      Collins declined to say she’ll oppose a tax bill that adds to the deficit, in contrast to her colleague Senator Bob Corker of Tennessee. But she said she cares about the debt and doesn’t want the tax bill to “blow a hole” in the deficit. She argued that “certain tax cuts done right will increase economic growth” and produce revenue.

      “I hope very much to be able to support a tax reform package," Collins said. "It’s very difficult — I’m not going to say I can guarantee that because I don’t know what’s going to be in it.”

        Read more: http://www.bloomberg.com/news/articles/2017-10-30/key-gop-senator-susan-collins-lays-out-her-demands-for-tax-bill

        Banks Pine for Loan Growth as Clients Wait on Trumps Promises

        President Donald Trump’s pledges to overhaul taxes, trade, infrastructure and health care may thrill some corporate leaders, but it’s causing many to delay expansions. That’s bad for banks.

        Lending growth probably decelerated for a fourth straight quarter in the three months ended Sept. 30 across more than a dozen of the biggest U.S. banks, according to Royal Bank of Canada analysts and Bloomberg calculations. Their total loans may have ticked up just 1.8 percent, the smallest increase in more than two years, as commercial and industrial customers held off on buying equipment and building plants.

        Executives are “hesitant to borrow in the face of uncertainty,” said Jason Goldberg, an analyst at Barclays Plc. “Whether it’s potential tax reform, health-care uncertainties, or they’re unclear what infrastructure spending is going to look like, you’ve definitely seen corporates take a pause.”

        Washington’s inaction has been frustrating bankers for months, a sentiment that may surface anew when they start posting quarterly results this week. During the last round in July, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon lashed out, saying, “There would be much stronger growth if there were more intelligent decisions and less gridlock.” In June, Bank of America Corp. Chief Operating Officer Thomas Montag said corporate clients need clarity to make big investment decisions.

        Trump and his top economic adviser, Gary Cohn, have said they expect the financial industry to help fund growth. But instead, a dearth of progress on big legislation has stymied that business.

        Congressional Republicans spent much of September trying to resurrect a failed health-care bill. Then Trump told lawmakers his $1 trillion infrastructure plan may not rely on public-private partnerships, potentially throwing a wrench into a key priority. The president also released a tax plan that many analysts consider unlikely to win support until designers can prove it won’t balloon the federal deficit.

        For banks, the uncertainties are compounding challenges in lending, which also is being constrained by tighter regulation and slower-than-expected interest-rate hikes — factors that have crimped trading revenue too. Low yields have encouraged firms to issue bonds and use the proceeds to repay bank loans, said Alison Williams, an analyst at Bloomberg Intelligence. U.S. Bancorp CEO Andrew Cecere addressed the challenges at an investor conference last month.

        “With the low yield curve, there was a lot of debt issuance, and that debt issuance was used to pay down some bank lending,” he said. In addition, “there was some more uncertainty that entered the market because of some of the slowdown in the perceived timing of tax policy and trade policy and regulation,” slowing companies’ capital expenditures.

        ‘Mental Signal’

        Corporate executives’ outlook for the next six to 12 months deteriorated in July and August, with some respondents citing heightened policy uncertainty, the Federal Reserve Bank of Chicago said last month. The number of workers on U.S. payrolls declined in September for the first time since 2010, reflecting major disruptions from hurricanes Harvey and Irma.

        For now, bank investors are willing to look beyond that. The 24-company KBW Bank Index surged more than 30 percent from the November election to early March on optimism that Trump’s administration will eventually ease bank regulation, reignite inflation and drive up interest rates. The rally resumed in September as attention shifted to taxes.

        “People were underweight financials for a long time,” said Chris Whalen, an independent analyst and consultant. “When Trump got elected that was a mental signal for these guys that we should increase our allocation.”

        Investors continue to see reasons for optimism. Trump’s plan to cut corporate tax rates would be particularly beneficial for banks, whose burdens are often elevated by a lack of deductions. The six largest U.S. banks could see net income rise $6.4 billion under the administration’s proposal. And lenders still produce big profits. JPMorgan generated $26.5 billion in the 12 months through June, a record for any U.S. bank.

        Mortgage, Autos

        Yet expectations for the third quarter are measured. JPMorgan, the nation’s largest bank, may say Oct. 12 that adjusted profit rose 2 percent to $5.89 billion, according to analysts surveyed by Bloomberg. At Citigroup Inc., set to report the same day, profit probably slipped 1 percent to $3.57 billion.

        Wells Fargo & Co. and Bank of America report the following day and Goldman Sachs Group Inc. and Morgan Stanley release earnings next week.

        There are other reasons for concern. While consumers are still borrowing more, there’s mounting evidence they’re becoming less reliable, potentially ending a period in which losses were low. Credit cards face heightened competition, while an overheated auto market has led some lenders like Wells Fargo to pull back.

        And for mortgage lending, a big driver for banks in the run-up to the 2008 financial crisis, new rules have made it more difficult to make money. Survivors have been buying loans from smaller “correspondent” lenders, a strategy that’s started to run out of room.

        “You will see some pain this quarter,” Whalen said. “JPMorgan and Wells Fargo have been bidding aggressively.”

        Trading Declines

        Trading also is expected to be down, in part because the lack of congressional action has left clients with few reasons to buy or sell. Executives from JPMorgan, Citigroup and Bank of America told investors last month to expect declines ranging from 15 percent to 20 percent in the third quarter from the same period a year ago.

        That may leave investors and analysts looking past this quarter’s results to the end of the year, when lawmakers may have more progress to show on tax policy and other priorities.

        “Banks tend to be more optimistic looking out than they are in the current quarter, so we’ll see,” Barclays’s Goldberg said. “Pipelines are good. At the end of the day though, loan growth is a reflection of the economy and economic growth has been a little bit more subdued than desired.”

          Read more: https://www.bloomberg.com/news/articles/2017-10-09/banks-pine-for-loan-growth-as-clients-wait-on-trump-s-promises