38 banking update Happy Anniversary?
It’s hard to believe that we are now five years (half a decade) on since the world found out that there were some serious problems with the balance sheets of some of the world’s largest banks. That’s five years since banks started to worry about lending to each other – and the global financial system started to seize up, write Patrick Long and Jim Meechan of Pitmans
Back then it was difficult for many outside the financial markets to see the risks for the global economy. It took the collapse of Lehman investment bank and a world recession a year later to demonstrate that.
Recent comments from The Bank of England suggests that the UK economy may get back to it’s pre-recession peak around 2014 but it will be a lot longer than that to get to where we should have been now – remember the Japanese lost decade!
A significant impact on the revival of the UK economy has been the perceived lack of bank funding available to companies. Whilst banks have been working hard to address this charge further setbacks have manifested themselves in the form of PPI, SWAPS; LIBOR and so on. There certainly has been some flak to deal with but other matters such as the Basel regulatory requirements has exacerbated what has been a very turbulent time for all.
During a recent interview with one of our 'broadsheets' a member of the Bank of England’s interim financial policy committee conceded that regulators may have forced bank’s to 'bullet- proof'their balance sheets too quickly and inadvertently stifled the amount of lending available to businesses and households.
Britain’s banks have been amongst the most prudent since the financial crisis by declaring their bad debts and by putting in place large cash cushions. However some senior bankers feel that the Bank of England has been pushing them to go even faster which has increased confusion and deterred them from lending.
Last month a former deputy governor at the Bank reflected the industry’s concerns when he stated that the US’s softer approach had assisted their banks to get out of crisis mode and back on the road to lending. An executive at The Bank of England has hinted that the pressure on lenders to beef up buffers could be eased – at last some pragmatism – it is almost three years since I expressed a view in this publication that we should have a “joined up approach” whereby lenders
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and regulators looked for some common ground to this situation.
Banks are working hard to get funds back into the market place and from our perspective in Pitmans we can see this. We are having discussions with our contacts in the banking sector that are keen to find a deal to fund and indeed many banks are promoting the national loan guarantee scheme which was launched in July of this year. Hopefully this scheme will eclipse the project Merlin initiative which is generally perceived as a forerunner to the latest initiative. Having said that statistics issued by The Bank of England indicates that credit availability in Q2 of 2012 was broadly unchanged from the previous 3 months and the general perception is that there will be little change during Q3 of 2012.
It could be argued that credit availability is linked to demand. Lenders have reported that demand for credit for small companies (T/O < £1 million) had risen slightly during Q2 however the demand from medium-sized firms (T/O up to £25m) was unchanged and demand from larger companies fell during this period. Demand during Q3 was expected to be unchanged for small firms, to increase for medium-sized firms and to fall for large firms. A range of factors were reported to be weighing on demand with lack of merger and acquisition activity and capital investment, driven by uncertainty over the euro area being the most significant.
A survey conducted earlier this year by Pitmans and The Thames Valley Business Magazine identified that Thames Valley business leaders were optimistic about their businesses albeit they acknowledged that difficult trading positions were likely to prevail. For a number of our clients that have decided to look for some additional funding we have been in the position to assist with this across a number of areas including commercial finance from senior debt providers, property finance both investment and development by means of senior debt and mezzanine funding and when required via specialised funds or equity investment.
For further information or to discuss these topics further contact Pitmans’ specialist banking & finance team.
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2012
Details: Jim Meechan Consultant 0118-9570220
jmeechan@pitmans.com
Details: Patrick Long Partner
0118-9570488
plong@pitmans.com
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