Industry insiders Rate
Expectations Looking for safe havens
Ian Buss, Head of Not for Profit and Education, Lloyds TSB
As we leave the economic doom and gloom of 2011 behind us, what does 2012 have in store? As has been proved (often daily) this is extremely difficult to predict. What is certain is that as we enter 2012, we are nowhere near as far out of the economic uncertainty that we thought we would be some six months ago.
I’ve just re-read an article I wrote back in July 2011 (an eternity when it comes to interest rates and financial markets) which mentioned a market view that base rate was likely to be 0.75% - 1.00% by early 2012. What a difference a few months make! As you can see from the graphs, the Reuters Bank of England Base Rate survey in January shows that expectations are that the base rate will stay at 0.50% through into 2013 now. Interestingly some commentators are talking about it not moving until 2014 at the earliest.
The eurozone is certainly playing heavily on economic uncertainty with an early January Deloitte survey of Chief Financial Officers (CFOs) stating that they see the biggest threat to their businesses in 2012 being a break-up of the European single currency. Interestingly this survey reveals that the CFOs believe there is a greater than one in three chance of at least one member of the eurozone leaving before the end of the year, and more than half expecting a double-dip recession as a result of European instability this year. One CFO surveyed by Deloitte said the biggest risk he saw was a “eurozone collapse sparking a second credit crunch”.
2011 saw the FTSE 100 open around 6,000 and close around 5,500 with a peak of over 6,100 and a trough of less than 4,800 - what this pattern will look like in 2012 is anyone’s guess. What I am hearing is more organisations saying they want to minimise their risk with what cash they do have to invest. I would expect these organisations to prefer to opt for safer havens for short and medium term investments.
Fixed term deposits are one way of gaining security whilst aiming for a higher return, but balancing liquidity against the need to extend the maturity profile to gain higher rates is a difficult balance. One suggestion is to take your cash reserves and split them into a number of fixed deposits of equal value - placing one at six months or more and the remainder on shorter terms down to, perhaps one month. As each matures, rolling it over for a full six months will mean that you end up with your reserves gaining rates attributable to six month deposits whilst ensuring a portion of your funds is always maturing in no more than one month’s time.
I think it well worth sitting down with your bank or investment advisers to review your strategy in a continuing uncertain economic environment.
LINK:
www.lloydstsbbusiness.com/community/index.asp
Alternative thinking
The broker’s view
Andrew Bullard, Head of Business, Cashflow UK Ltd
As we are entering the start of 2012 I am able to reflect on 2011 and the year as a whole was better in terms of the number of deals completed than 2010.
It was, however, a more difficult year because the deals were very different and needed some “outside of the box” thinking. We found the SMEs talking to us did not just need an invoice finance solution but a package generally because there was no support from the high street banks for the smaller SMEs. But by using our array of lenders and contacts for equity funding, business loans and asset finance we were able to provide an overall solution which suited the clients’ current and future needs.
The world of broking has changed and will continue to change as we progress through this decade. Whilst the invoice finance market continues to have a large appetite and be ever more competitive with itself, the asset finance and property finance lending options remain limited. However, our use of the NACFB and its panel of alternative lending patrons has opened our eyes to the possibilities of structuring facilities in innovative ways to provide that vital solution for the client.
In 2011 we used over 35 different invoice finance lenders; more than we have ever used before and that is due to there being more niche or regional players providing a good service for the smaller SME. 2011 also saw a large increase in referrals from the intermediary community who can see the benefit of using a specialist broker as their clients’ needs become more specific and less mainstream.
There are signs that the asset finance market is improving and this should lead to more appetite from the existing lenders and some new ones entering the market but this does not mean the previous good times have returned. These lenders will continue to be cautious.
The same applies for the property market, although the bridging community has been quite bullish in 2011. What brokers need to bear in mind is that there is generally a solution out there in the market, but it is just not in the format they are used too.
There should be more optimism for 2012; and the Olympics, whilst it can provide a distraction, will also provide a stimulus for the UK business community.
We just have to make sure that we as the broker community are there ready and willing to seize the opportunities that arise during the year and provide the funding solutions for the UK SME business community.
LINK:
www.cashflowuk.com
February 2012
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