Energy Concerns Dim Mid-Size Firms’ Optimism

Mid-size California businesses remain optimistic but are increasingly worried that the state’s power crisis could dent their operations this year, a new survey shows.

Although 75% of the companies surveyed predicted that their 2001 revenue growth would match or exceed its level of last year, the majority also expressed concern that the “California energy crisis will have a negative impact” on their results, according to a report being released today by Manufacturers Bank, a Los Angeles bank that focuses on lending to middle-market businesses.

Yet a separate report said the same type of mid-size businesses--those with annual revenues of $500 million or less--are facing growing problems getting loans they need to expand or to refinance existing debts.

A “severe credit crunch is underway in the middle market,” the worst in a decade, according to the report from Houlihan Lokey Howard & Zukin Capital, an investment bank in Los Angeles. The main reason: Lenders are becoming more stringent in making new loans, and making loans to new borrowers, in the face of the slowing economy and increasing reports of disappointing profits and cash flows at mid-size companies.

Manufacturers Bank, a unit of Sakura Bank of Japan, said it first surveyed more than 100 middle-market companies in December and found the firms not only expected sustained revenue growth, but 40% or more expected to place more emphasis on marketing and advertising, expansion and international growth.

But when the bank made inquiries in late January, it found “mounting trepidation” about the electricity crisis. The crisis “has clouded the economic picture,” so a “quick and effective resolution to the energy issue could mean a prosperous year for California’s middle market,” said Michael Aarons, Manufacturers Bank’s senior vice president for marketing and product management.

“December’s optimism shifted to a more cautious, but still optimistic, attitude in January,” Aarons said.

As they grapple with the power problem, the vast majority of middle-market firms said they “are not at all likely” to either cut their work forces or raise prices, the bank reported.

Their prospects for getting bank financing are a lot less rosy, however, according to the Houlihan Lokey report.

Meanwhile, job growth and taxable-business sales in Los Angeles County “will decline slightly this year,” but the value of new building permits and housing prices “should increase slightly,” James Doti, an economist and president of Chapman University, said Thursday at a forum sponsored by City National Bank in Beverly Hills.