Archive for March, 2014

The irony. A pawnbroker goes bust

albemarle & bond pawnbrokers in hammersmith, west london, england

Yes its true. And perhaps there will be few tears shed

Pawnbroking perhaps doesn’t quite have the best of images being seen as rather dickensian. Once the recession kicked in there was a degree of publicity about how these firms are once again on the rise having almost completely disappeared from the high street. Just as we saw with the “we buy gold” shops, they were suddenly everywhere

And this would appear to have been the difficulty with Albermarle. 

Naturally they assumed with a depressed economic environment the time was ripe for their business to prosper. Obvious? 

Too obvious in truth. And thats the difficulty. Businesses often overreact to economic conditions. In fact this is a familiar model whether it be luxury goods outlets sprouting during a minor upswing or pawnbrokers during a downswing


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Osbourne to help banks to help SMEs. Maybe…

Budget box

Unfortunately i cannot link the story which is behind the Times paywall but in essence it is expected that this weeks budget will include proposals to instruct banks to advise SMEs of alternative forms of lending, if refused for a loan

All well and good but how will the borrower know that they are being advised the best option?

The banker will possibly have no real interest in whether they receive the funding or not and is unlikely to scour the market for the very best option. Funding is not of course just about access. Anyone can borrow but at what cost and on what terms?

No advice is better than bad advice

Naturally you can probably see where I am coming from here and maybe im being a little too cynical about the banking world but it is understandable that if the banks have not been incentivised down this route already, then an “instruction” from the government isnt going to make a lot of difference

Brokers operating in the same manner as myself have to find the very best arrangement for an SME. That is how we survive. There are numerous options in the market and funding is a long term arrangement which can make or break a business. 

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Intangible Assets. Are they worthless?

Intangible assets are frequently hard to define but does that mean that their value should be discounted entirely? It would appear that many credit agencies are still determined to give a nil value to this frequent balance sheet item. 

I am in the middle of a discussion with a major credit agency regarding this very issue. I will keep it simple but the fundamentals of the business we are looking at are as follows

Net worth                  (9m)

Shareholders funds   11m

Intangible assets        20m

The credit insurer is looking no further than the net worth and refusing credit. Fair enough some might say, but the “intangibles” were clearly paid for by directors loans which are equivalent value on the other side of the balance sheet

So the credit insurers are suggesting that they paid £20m for something of no value? A total £20m liability?

Can we believe that?

Of course not. They bought the most significant “intangible” of all. A brand. And as it happens, since purchase, this is producing net profit of over £2m. The bought at 10 years multiple profits. High but not extraordinary

But thats not the point. The shoddy and lazy insurer is not prepared to explain or look beyond the very frontline figures. Despite clearly presenting the case, there has been no response

If there is a lesson to be learnt here it is that even the supposedly most experienced credit assessors can get it wrong or simply not understand what they are looking at.

Naturally this is where I like to step in

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Credit risk around the world


Here is a useful map of the credit risk of each country.

Or should i say most countries. You might expect there to be no rating at all for the likes of North Korea or Sudan, but it is disturbing how few african countries qualify, with even states such as Algeria excluded

Bolivia does not qualify in South America but it is even more startling that the country with the world largest oil reserves also fails. The economic mismanagement of Venezuela is truly exposed


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Perils of credit insurance


A rather cautionary tale from this sector and one that has left a bitter taste in a client’s mouth. 

My client took out insurance paying an additional premium to obtain extended cover on two particular clients. One in particular was vital. the cover was granted but admittedly not guaranteed for a period of time (something i believe the broker should have highlighted)

Almost immediately after signing the contract the cover was slashed from 20k to zero. 

Now you can imagine the clients reaction. Cover can be withdrawn for a number of reasons of course and of these most can be cross referenced. However one criteria cannot be checked by a third party. That is cover withdrawn due to late payments by the client to their suppliers. 

And guess what?

Now my belief is that this was strictly by the book and nothing underhand was at play but to an outsider it would look like a cynical attempt to get the client to agree to a contract and then withdraw cover 

Misselling is a big issue in the consumer market of course. Could we see this spill over to the business market? I am not suggesting directly that this was mis-sold. but we know that many finance providers are very close to the mark. To put it kindly

I am advising my client here and helping present a case. He will will not pay the premium and the fight goes on.  

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A boom in construction?


Certainly according to many reports (see link at end of piece)

House building is a the highest point in nearly seven years and civil engineering strongest since 1997. Commercial property was not reported but certainly in the South east it is strong.

I work quite closely with clients in the industry and whilst the cash and finance chain remains as hair raising as ever, prices are rising and staff are moving becoming very footloose. Both obvious ground level signs of rapid activity

Often seen as a bell weather industry this will be seen as good news for the overall economy. Lets see how long it lasts

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Has the Late Payment Code worked?

Question was posed on a forum and Philip King of the ICM was ready with an interesting response

The only data I have on this was produced by Experian in December 2012 and said: The data indicates that PPC has had a positive effect on payment times. Experian reviewed the difference between the average payment times of signatories and non-signatories to the Code over each of the last four years. It found that on average those who had signed up to the Code paid five days earlier that those who had not. Furthermore, there has been a sizable improvement over the period amongst PPC signatories who now pay 12 days quicker than in December 2008. 

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