46 banking update
Still no significant change
Whilst doing a bit of research for this article I noticed that the “Banking Update” that I had written was exactly a year to the day that I started to “tap” away on this one, writes Jim Meechan, consultant, Pitmans LLP
Last year we were half a decade in to “the crisis” so what’s happened in the past year? Well I am sure there have been a number of events, initiatives etc but for the most part nothing cataclysmic or indeed euphoric. In the main it seems fairly benign.
... there remains a number of issues that may manifest themselves before the end of the year that banks may need to address
We now have a new governor of The Bank of England; Lord King has retired from his post and has been replaced by Mark Carney who promptly told BBC Radio 4’s Today programme that there must be a change of culture in “socially useless” banks that disconnect themselves from the real economy. Carney went on to add that banks can be useful to society when they focus on helping businesses invest and create jobs, but they must ensure that they do not lose that focus.
Moving on from the new governor I thought it was worth a look at how the UK’s big five stock market listed banks have fared in the first half of this year. The answer is quite impressive – collectively they have reported half year profits well in excess of £18 billion and as such we are on course for a strong outcome for the year as a whole. So are we out of the woods yet? It would be good to say yes but there are a number of issues still to deal with before then. Bear in mind that the taxpayer is owed around £65b from the bailouts of Royal Bank of Scotland and Lloyds.
The recent report concluded that the weakness in lending to SME’s over the past 18 months is likely to reflect a combination of demand and supply factors
In addition to the bailout banks, bear in mind that Barclays has asked it’s investors for almost £6b through a share issue to help fill a £12.8b hole in it’s balance sheet identified by the Prudential Regulation Authority (PRA). The cash call was larger than expected, as too was the extra £2b set aside for mis-selling payment protection and interest-rate swaps.
So with the Libor-rigging scandal rolling on, regulation change gathering apace and the economies of many countries taking small steps towards recovery, there remains a number of issues that may manifest themselves before the end of the year that banks may need to address.
There have been many surveys and polls undertaken to gauge the moods and trends nationally, locally and by sector. Pitmans, in conjunction with The Business Magazine conducted their second “Funding your business” survey. This time around it was noted that there was a growing number of respondents from within the SME community who indicated that lack of debt finance was stifling their ability to grow (30% up from 22% the previous year). This survey was Thames Valley centric. On the other hand a nationwide survey was carried out by Zurich concluded that SMEs are growing in confidence that the UK’s economic recovery is around the corner. According to Zurich the number of SMEs who believe the economy will improve this autumn has almost doubled to 38% from 20% earlier this year. By my calculations this still leaves 62% of SMEs who may think otherwise. Indeed plans to boost credit to SMEs was dented when Nationwide delayed it’s launch into this sector until 2016.
www.businessmag.co.uk
A good “finger on the pulse” guide to what is going on out there is the quarterly report published by The Bank of England (Trends in Lending). The recent report concluded that the weakness in lending to SMEs over the past 18 months is likely to reflect a combination of demand and supply factors. Earlier editions of Trends in Lending noted that demand for credit by SMEs was muted over 2012. The latest SME finance monitor reported that around 75% of SMEs had not applied for a new or renewed credit facility in the year to 2013.
Overall there is a general perception that credit conditions for SMEs are improving and in April Bank of England and HM Treasury announced an extention to the funding for lending scheme in such a way as to provide considerably greater incentives for banks to lend to SMEs.
Pitmans has contacts with mainstream banks and can assist with securing senior debt for suitable projects; we can also assist with the acquisition of mezzanine finance, invoice finance, equity and specialist fund finance as appropriate.
It’s amazing what you come across while undertaking research for an article – I completely missed this but it seems like the cause for the financial crisis has been established - The Guardian ran an article in which the former drug tsar David Nutt concluded that “coked-up bankers” caused the credit crunch. This was backed up by an A&E specialist based at Cork University Hospital who concluded that”people were making insane decisions and thinking they were 110% right …. this it seems led to the chaos”. Now we know.
Details: Jim Meechan 0118-9570220
jmeechan@pitmans.com www.pitmans.com
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2013
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