Finance

As the financial community anxiously awaits the markets to return to even near-normal operations, it’s becoming increasingly clear that local dealmaking would remain disrupted in various ways for months to come.

That’s because many, if not most, L.A. deals are financed through New York-based firms, which issue the loans and then securitize the debt and sell the resultant commercial paper on the secondary markets. The biggest purchasers of such securities are institutional investors, like pension funds and charitable endowments.

And those investors are very rattled right now. It will take at least 60 to 90 days before they settle down enough to decide what rate of return they would require to purchase commercial paper. In turn, without the ability to securitize their loans, the big New York finance firms won’t likely provide financing to dealmakers in L.A. (or elsewhere) because the New York financiers’ exit strategy (securitizing the debt) has been temporarily shut off.

Separate from these secondary market complications, many New York finance houses were based in the World Trade Center, or nearby. So it will take them 30 to 60 days, or longer, to even get back into their buildings, much less become fully operational.

Meanwhile, any public offerings including a secondary offering that the L.A. office of Credit Suisse First Boston had planned to issue today (Sept. 17) are being indefinitely postponed until markets stabilize. Once that happens, most offerings will likely need to be re-priced and some of them will likely be scuttled.

Michael Stremfel

Retail

A tough retail year will likely get tougher in the wake of the terrorist attacks on the U.S.

The attacks cast a pall across Los Angeles and the rest of the country, leaving many consumers uninterested in hitting the shopping malls any time soon.

A difficult fourth quarter already had been predicted for store owners, with sales predicted to increase only 1 to 2 percent over last year.

Kurt Barnard, editor of the Barnard Retail Trend Report, said there has been a general sense of instability in the economy and the stock market has been in the doldrums, so the terrorist attacks will only add to shopper malaise.

Analysts are forecasting that September will be a disappointing month for retailers who had been counting on a modest recovery as consumers started to loosen their purse strings with tax rebates filtering in. Also reduced interest rates were expected to spur credit card purchases.

Now, there is a big question mark about even the holiday season. Additionally, with a nation and world wary of traveling by air, there will be fewer business travelers and tourists making purchases.

One of the hardest hit areas will be large attractions such as Disneyland that draw travelers from around the world. Retail shopping in areas around theme parks is going to be down significantly.

Deborah Belgum

Trade

There might be some bottlenecks and delays due to last week’s events, but few outright order cancellations.

The closing of Los Angeles and San Francisco international airports last week halted shipments of electronic components coming in from Asia. Heightened security at the U.S.-Mexican border curtailed the substantial flow of trucked goods and tourists in both directions. Temporary closures were instituted at the seaports of Long Beach and Los Angeles, where retail goods arrive by cargo ship, primarily from Asia, for distribution throughout the United States.

Once the ports were reopened, cargo was subjected to heightened scrutiny from government inspectors. The resulting delays will likely dent the third-quarter and fourth-quarter trade statistics, predicted Tom Lieser, executive director of UCLA’s Business Forecasting Project.

“The important thing is whether people in business are so concerned that they reduce spending instead of just postponing it. What we’ve seen so far points to just postponing,” Lieser said.

At the Port of Long Beach, delays have been minimal, said Fausto Capobianco, a port spokesman. Due to the already slowing economy, L.A. ports haven’t yet seen the normal holiday surge in cargo, and some retail distributors are concerned that stepped up Coast Guard and Customs Service inspections could cause logjams. Capobianco dismissed those concerns as premature.

Anthony Palazzo

Manufacturing

Already stung by losing its title as the manufacturing capital of the U.S., any lost or delayed business caused by last week’s terrorism incidents couldn’t come at a worst time for L.A. manufacturers.

Jack Kyser, chief economist of the Los Angeles Economic Development Corp., said it will take about a month to get the pipeline back to normal but he predicted that the ripple effect of New York’s events on consumers is likely to have the greatest impact. “When there’s uncertainty people don’t take action, they sit tight,” he said.

Last week’s events could not have been better planned to disrupt the apparel industry, according to Lonnie Kane, president of Karen Kane Inc., a designer and manufacturer in Vernon. Last week was supposed to be market week in New York when the designs for the next fashion season are introduced and apparel producers meet with buyers. But events were canceled.

“How do you make up for missing the major market week of the season?” Kane said. He added that such a blow could easily put smaller apparel firms out of business.

How distribution will be affected is a major uncertainty for all manufacturers. One key question: how badly will new security measures at ports and airports clog distribution channels.

Conor Dougherty

Entertainment

The immediate paralysis caused by last week’s terrorist acts has given way to a flurry of entertainment-related postponements and cancellations that promise to have a negative short-term impact on Hollywood.

But the larger question of how the industry emerges from these unprecedented events will depend on consumer behavior in the months ahead.

“There’s no particular or unique impact on the entertainment industry beyond what any other industry is dealing with,” said Ron Silverman, managing director of the Los Angeles office of Gerard Klauer Mattison & Co.

“In the long run, it depends how enthusiastically people will attend entertainment centered venues like amusement parks and theaters where large crowds of people congregate,” he said.

The struggling exhibition industry also has much to lose if people stay away out of fear or ambivalence. “The economics of the industry don’t change much unless the consumer is very rattled,” said Lee Westerfield, a broadcast analyst with UBS Warburg. “The financial markets bow but they don’t break with this type of an event.”

Darrell Satzman

Aerospace/Defense

L.A. could get a boost if Washington moves forward to increase defense spending in light of last week’s attacks. But it’s far too early to speculate how many dollars are likely to be appropriated and where that money will go.

Conceivably, Southern California could see increased spending on military planes, satellites, and information technology. But more military spending might not include a proposed national missile defense system. In fact, the attacks could serve as political ammunition for opponents of the proposal, which would provide a large influx of funding to the area.

“This is going to give a lot of fodder to foes of national missile defense who will say we could have spent $100 billion on it and not stopped a plane from flying into the World Trade Center,” said Jon Kutler, president of Quarterdeck Investment Partners Inc., a Century City defense investment bank. “(Additional funding) will have a less dramatic impact than people would ordinarily assume.”

Furthermore, heightened fears about flying could result in further reductions to the area’s large airline subcontractor base and possibly Boeing Co.’s 717 commercial jet production.

David Greenberg

Travel

Unquestionably, this will be one of the hardest hit industries for L.A. and the nation as a whole.

Corporate travel, which already had been trimmed by big and small businesses alike, is likely to shrink even more as meetings and conferences are postponed or canceled.

The Personal Communications Industry Association convention, which had been expected to draw 2,000 delegates to Los Angeles last week, was canceled and won’t be rescheduled.

Meanwhile, leisure travel, which had resisted the economic slowdown, is expected to decline considerably, as beefed-up security around airports adds another layer of time-consuming bureaucracy.

“Asian visitors to the U.S. tend to spend more than U.S. tourists, and they’ve demonstrated in the past that they’re sensitive to security issues,” said Tom Lieser, executive director of UCLA’s Business Forecasting Project.

Some local tour operators predict their business will be off as much as 25 percent in the fourth quarter. “I think we are going to have to struggle over the next quarter,” said Gary Mansour, owner of Mansour Travel Co. in Beverly Hills.

This year, the hotel industry had already been on the road to a 1 percent dip in occupancy. That may end up to be a 2 percent decline, predicted Bruce Baltin, senior vice president of PKF Consulting in Los Angeles.