Word: citibanker
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...wrinkle called "the profits depression," to explain the imminence of a capital crisis. There are three ways in which businesses acquire capital for plant and equipment expansion: they retain earnings or profits, they sell stocks, or they sell bonds. Over the past ten years, according to Citibank's Wriston, business has gone increasingly into debt (sold bonds) to finance its expansion; and the capacity of the bond markets is narrowing. Thus companies will have to look more and more to the stock market and to retained profits for capital sources. This, of course, puts a premium on profits...
...loan contract is written in language they can easily understand. The simple one-page document-one-third as long as its predecessor-spells out the bank's and borrower's obligations in relaxed you and I terms with nary a hereinafter to get in the way. And Citibank is not alone (see box). Anxious to stimulate business, banks and insurance companies alike are hastening to switch from the old long-winded fine print to the new legal-ease...
Slow Ahead? How much higher will interest rates go? Some economists, among them Citibank's Leif Olsen, believe that short-term rates-now at 7¾% in the case of the prime rate-may rise another .25 to .5 percentage points. Chicago Banker Beryl Sprinkel, a member of TIME'S Board of Economists, foresees an increase "perhaps to 8½% by year's end." Meanwhile, Chase Econometrics, a subsidiary of the Chase Manhattan Bank, believes short-term rates could go another one to 1¼ percentage points higher. If the cost of money does indeed reach that...
Compared with a year ago, to be sure, profits still look bad. Citibank calculates that second-quarter earnings of the 1,331 firms in its survey fell 17% below a year earlier (see chart); manufacturers were down 22%. Scruggs predicts that for all of 1975, corporate earnings will sink 20% to 25% under 1974-the most severe year-to-year drop since...
...many companies were swollen by inflation, which raised the prices of goods the companies held in bulging inventories. During 1975, these artificial profits have largely disappeared: companies have drastically reduced their inventories, and the prices of merchandise remaining in stock are rising less rapidly. During the second quarter, Citibank calculates, less than 10% of all corporate pretax profits were traceable to rising inventory values, v. nearly 33% during the same three months of 1974. Inventory values, the bank's economists believe, should continue to be less of a distorting factor in profit reports for the rest of this year...