Bank Credit Collapse Crunches Construction

Bank Credit Collapse Crunches Construction

October 3, 2009 (LPAC)—The case of Minneapolis-based Schwing Construction is a microcosm of the collapse of U.S. construction activity, the failure of the American Recovery and Reconstruction (Obama "stimulus") Act, and the intensifying contraction of bank credit in the current economic collapse. The story was reported yesterday in the Minneapolis Star-Tribune.

Schwing, one of the country's largest makers of concrete mixer trucks and concrete pumps for construction sites, has been forced into Chapter 11 bankruptcy, in significant part by Wells Fargo bank severing its credit lines.

The company played a major part in the rebuilding of the Minneapolis-St. Paul I-35 bridge in one year after it collapsed, and is now working on the New York City "Freedom Tower." It would be a significant player if any major public infrastructure works, like those in FDR's New Deal recovery, were being carried out by the "stimulus." But instead, Schwing's orders and business are have largely collapsed. Its work force is down 80% in two years, from 660 to 130. Its revenue is 80% down from $276 million in 2007 to $65 million in 2009.

Now in addition, Schwing has been driven into bankruptcy by Wells Fargo Bank, which has eliminated credit lines to the company even though they were not and had not been delinquent. First, Wells Fargo forced Schwing to pay down the main credit line, from $45 million to $21 million. Then the bank began to "sweep" Schwing's operating accounts, pulling out cash, to cut the lines further or eliminate them. Schwing went into Chapter 11 to protect itself from Wells Fargo, to try to continue to meet payroll and pay suppliers, and to be able to accept new orders without Wells Fargo seizing the prepayments.