Remarkable collection of East End colour photography

Can be found here  but here is a sample

 

Should insolvency practioners carry out “turnaround”?

Here is an excellent piece from my friend Tony Groom

Credit lessons learnt from the Restaurant crisis

Aside from Carillion , perhaps the biggest curret credit topic in the UK economy is the growing difficulties within the restaurant business or more specifically the ‘casual eating out’ chains.

Byron has entered a CVA, Jamie Oliver’s chains are strugglind and Strada is apparently on the brink. This excellent piece in the Guardian provides some revealing detail and background and the following neatly explains a bubble at its peak

Fox then had branches of his east Asian restaurant brand, Tampopo, in two huge shopping centres: Oracle in Reading and Cabot Circus in Bristol. He was facing a painful rent increase in Reading but, remarkably, the owners of the centres offered him £1.3m to vacate both sites – such was the clamour, presumably, among the biggest restaurant players to snap up any empty space at top-of-the-market prices.

“In Reading, the rent was £75,000 and they wanted to put it up to £130,000. I was being offered £650,000 to hand over the keys. It was quite unemotional. When someone offers you 10 years’ money, it’s time to move on,” says Fox, who still runs five restaurants in Manchester and London. “It was symptomatic of how giddy the market was and, for most normal brands, it’s kind of unsustainable.”

Think how much custom you would have to generate on these sites to make sufficient margin to cover these costs. The Reading location I know well and it is hardly lacking in competition. There has been a huge growth in ‘casual dining’ but as is so often the case supply soon outstrips demand. Byron is a perfect example of overexpansion but what drives this?

Quite how the restaurant world became so bloated is a moot point. Many blame a sudden gush of private equity money into food when it seemed it would be the leisure economy of the future. Private equity backers, explains Chomka, want to expand rapidly, then sell up while a brand is still buoyant, usually in a three-to-five-year cycle.

Clearly the pressure has often come from those seeking a quick return rather than genuinely considered growth but it would be incorrect to tar all PE with the same brush

For Simon Potts, the MD of the private equity-backed Alchemist cocktail bar and restaurant group – which, bucking the trend, will open four sites this year to add to its existing 13 – the issue is not investment, but rigorous planning. “You’ve got to be realistic,” he says. “We won’t have 150 locations, probably 70 maximum. If you tell [investors] you’re going to do 40 sites, however, it’s not unreasonable for them to expect 40. That’s where the pressure comes from.”

Overexpansion will always be one of the most significant reasons for business failure but poor choices of management are also significant. Jamie Oliver has been criticised for employing family members to run his business rather than specialists. That has a whiff of an unwillingness to be challenged. His outlets get very poor reviews

The key credit lesson here are that there are inherrent risks with any business that is overexpanding expecially is they are chasing business in a market which is high profile and growing simply because they will not be alone. Poor management and a sense of hubris whereby the owner(s) start to believe that all they touch turns to gold and lack the structures and checks and balances to keep the feet on the ground.

Ultimately the outlets have to deliver. Ive experienced poor service in Byrons recently and quality will always be key. Chains have to deliver and many such as Wagamama certainly do. Which leads up to the last word. Wetherspoons has been a huge success of course but would this have been expected?

For instance, who would have thought that Jamie’s Italian – a brand supposedly popularising rustic, artisanal Mediterranean cooking – would share a meat supplier, the now-collapsed Russell Hume, with budget pub chain Wetherspoons?

 

 

 

Patrick Hosking on the RBS scandal

 

Its not often that I copy a full article word for word but this excellent piece from the financial editor of The Times demands attention

 

It was my fault. I am sorry. I resign. Nine words yet to be heard from anyone connected with the misconduct at Royal Bank of Scotland’s turnaround unit. Actually, nine words rarely heard from any banking chief. Boy, would it be nice to hear them uttered by somebody, anybody, in this particular case.
The circumstances are now pretty well established. The official report into the saga at RBS’s Global Restructuring Group is freely available online. Today MPs will decide whether to give it parliamentary seal of approval and formally publish it.
From 2008 to 2013, the bankers in this division mistreated thousands of small and medium-sized business clients, gouging fees out of them at every turn and prioritising extracting cash over treating them fairly, let alone trying to help them claw their way out of trouble.
The failings at GRG were emphatically not a few isolated incidents — the culture of screwing the customer was institutionalised and systematic. The strategy was “intentional and co-ordinated”. The mistreatment was “widespread”. It was not the result of idiosyncratic decisions by local managers but “endemic in GRG’s arrangements”. And it was caused by “fundamental failings to ensure the effective oversight and governance of GRG”.
If ever there were a case for pursuing individual senior managers and holding them to account, this is it. After all the sermons from financial regulators about the need for personal accountability at the top, this scandal is crying out for heads on spikes. The fact that RBS is largely owned by taxpayers adds to the case for retribution.

 

Public confidence in banking and in regulation demands someone be held to account. This must not be allowed to become another episode, like the mis-selling of interest rate swaps to small businesses, where everyone agrees the behaviour was dreadful but nobody is found culpable. Or the PPI debacle, which has cost bank shareholders £40 billion so far, but for which not one senior figure has been held responsible.
Regulators are now looking at banning, fining or censuring individuals through enforcement action. But they are hamstrung. First, commercial lending is not a regulated activity. No rules have been broken because there are no rules. Second, the dirty work took place before March 7, 2016 — the date from which the new senior managers regime came into force. Third, some of those involved no longer work in financial services and so no longer need authorisation.

There are many potential culprits. There’s Derek Sach, who ran GRG and was, until recently, advising CVC, the private equity group. There’s Nathan Bostock, who was head of risk and restructuring at the time and Sach’s boss and now heads Santander UK. Then there’s his old boss Stephen Hester, who was chief executive of RBS and now heads RSA, the insurer. There is even his boss at the time, Sir Philip Hampton, RBS’s chairman, who now chairs Glaxosmithkline. And there are others such as Chris Sullivan, head of corporate banking at RBS at the time, now one of Mr Bostock’s senior lieutenants at Santander, and Declan Hourican, head of finance at GRG and now the numbers chief at Tesco Bank.
All the way up the chain of command, no one seems to have been paying attention. The normal three-step approach in banking at the time was allowed to prevail: 1, set targets for staff; 2, reward them for meeting those targets; 3, doggedly look the other way, whatever the smell coming up through the floorboards.
It’s no excuse to claim that GRG was a small part of RBS and easy to overlook. In fact, by one measure it made a surplus of £1.2 billion in 2011. That compares with a group loss that year of £2 billion.
It’s no excuse to claim ignorance. The abuses were widespread and went on for years. The rapacious culture was so institutionalised that a middle manager could think nothing of sending out that memo about giving clients enough rope to hang themselves. One of the duties of anyone in a risk business like banking is, bluntly, to go looking for trouble when guarding against misconduct.
RBS senior managers seem to have been entirely incurious, then compounded the error by refusing to take the allegations seriously. Lawrence Tomlinson, whose original investigation into GRG started the later inquiries, was damning about the “bullying and shouty” response of Ross McEwan, the current RBS chief executive, in these pages yesterday. RBS denies this, while clinging to the fig leaf that the report at least stopped short of finding that RBS deliberately tipped businesses into GRG in order to feed on them.
There has to be a scalp. “Fundamental failings in oversight and governance” require the punishment of the overseers and the governors. Who’s it to be?
Mr Bostock, who declines to comment, looks like the most senior figure who could be vulnerable. He was close enough to GRG to have known what was going on, or to be censured if he didn’t. He was senior enough in RBS, and even more senior at Santander today, to be made an example of.
Mr Bostock has a bullet-proof jacket, however. When appointed to run Santander in 2014, he had to go through all the fitness and properness tests and passed even though the GRG scandal was known about. For regulators to pursue him now would be to cast doubt on their vetting procedures. The same applies to Mr Hester and Mr Sullivan.
Enforcement action against anyone is going to be difficult. Regulators might do better to reach for the Mervyn King playbook. The Bank of England governor didn’t bother with due process when he wanted Bob Diamond sacked by Barclays after the Libor-rigging scandal. He just kept demanding the Barclays board hand him his head on a platter till he got it.
Sixteen thousand businesses went through the GRG machinery. It’s too much to hope they will ever hear that mea culpa, but they at least deserve a visible scalp.
Patrick Hosking is Financial Editor of The Times

Dry Powder

Not too often does a visit to the theatre will provide material for this blog although there is little doubt that many business relationships can be quite Shakespearian.

There have been a number of plays touching on the financial crisis or various financial scandals of one type of another. Finance does lend itself to moral questions which is the basis of so much theatre.

Dry Powder is a perfect example. Currently showing at the excellent Hampstead Theatre, it touches on the conflicting morals of whether the bottom line should be the sole driver behind business aquisition or whether there are wider considerations of which the employees are the most pertinent. In fact this very scenario resonated with me given a MBO I am arranging finance for.

Great performances and a razor sharp script. Arguably the ending was a little flat but overall this is certainly a play to catch.

 

 

 

Can factoring work?

This is taken from my newsletter. Feel free to let me know if you wish to subscribe

 

Firstly the difference between factoring and invoice discounting should be made clear. Fundamentally factoring is where the lender manages your basic credit control whereas you retain the function under invoice discounting,

Most lenders will tell you that factoring is on the wane and some have pulled out this market altogether in recent times. In the past the function has been oversold as an easy solution to a firms credit control requirements and frequently failed to deliver. As a Credit Manager by background I have been able to pinpoint the failings.

I will not  specifically detail these today but instead will highlight where factoring can actually work for the client.

Firstly some new businesses will really not have much experience of credit control and will struggle with the procedures and organisation. Other businesses will correctly believe that having a reputable name chasing the invoices adds weight.

Many clients now run their accounts payables from remote call centres. These take time a persisitence to deal with and if your client base is largely blue chip then factoring is a reasonable option because the contact is a clear step removed from your direct contacts.

I have examples of all the above and the key has been to understand the clients needs and the nature of their clients and debtors

Surprisingly the costs of factoring are often very close to those of invice discounting too but another consideration is the quality of the credit control offered by the factoring provider.

I know where good service is offered and where it is also indifferent.

As ever, I am always available to discuss further

 

The solution to late payments?

A lot of advice is trotted out to small businesses on how best to avoid the perennial issue of late payments from customers. Unfortunately much of this advice comes not from experienced credit managers who have the necessary experience.

This article is fairly typical in being well meaning but missing vital points. Firstly the suggestion for improving collections is ensure you have the right “accounting software”. Fine, but anyone who thinks that is all that is required is in for a nasty surprise.

The second recommendation is the old favourite the Direct Debit. How many times has this been suggested over the years and how many times does it have to be explained that clients are simply not going to give suppliers that degree of control over the timing and level of payment let alone the near unfettered access to their bank accounts, not least because of the open opportunity for fraud.

Any client experiencing colletion or cash problems should take advice from someone who will take time to understand their business. Credit management is a often complex and sensitive process with many factors to consider. Those expecting simple one stop resolutions will usually be very disappointed

 

 

RBS report leaked

 

The FCA have invited this uopn themselves. There is quite rightly widespread disgust at their actions (or non actions) and more than a sense that this reeks of collusion.

The report has been leaked in all its glory and is apparently easily accessible online but a question remains

Given their reluctance to publish can we also trust that the contents are as far reaching as they should be?

RBS and the FCA disgrace

This excellent comment piece by Ruth Davidson neatly summarises the present situation

It would appear that no adequate reason has been given by the FCA for its tardiness and clear reluctance to release their report into RBS’s gross and frankly disgusting handling of SME clients facing difficult times

The impression this gives is awful and there is obviously some explanations required. in fact a thorough interrogation would be advisable

Many of you will be or at least should be, aware of the background to this story, so I will do little more than add a couple of opinions

1. Clearly not all the large lenders can be tarnished by the same brush but RBS are not isolated in this behaviour. The key point will always remain. If a borrower requires a personal service and strong support this is more likely to be found with smaller independent providers.
2. I have heard too little or should I say, virtually nothing, from my contacts in the banking sector regarding the horrific treatment of these RBS clients. The trusim  is that what you dont say is as important as what you do say.
3. Those responsible should have full force ranged against them. And I mean full force….

Frankly if I had refered a client to RBS who ended up being treated in this manner, I would be furious and ashamed at the same time

I sometimes wonder whether my role description of “broker” is adequate or accurate. Essentially we are employed by the clients to find the very best solution but the advice goes a lot further than the issue of cost. Facilty is a factor but the relationship is paramount. Furthermore the advice to my clients is ongoing on a consultative basis.

More than ever the advice given to borrowers requires the wider perspective and market knowledge

 

The Short Firm Fraud

A good piece by the ever excellent James Hurley in the Times today. Sadly I cant link but in essence its regarding the growing incidence of the “Short firm fraud”

What is this?

The method is that false accounts are filed at companies house which produce a strong profile of a newly formed business. On that basis a decent credit rating is granted by the agencies who rely simply on the numbers and then the fraudsters are then able to obtain credit from suppliers who simply use agency ratings without examining the client in a little more detail

Clearly this is illegal but the victims of the fraud do have themselves to blame too. Simply  looking at a credit agencies rating unquestioningly is poor credit management. A quick examination of some wider detail would soon uncover whether the entity is real. Also its unusual for small firms to file glowing accounts in their first years trading,

Credit control uses the numbers as the starting point only.

Every firm should ensure that their credit management is overseen in a professional and knowledgable manner other wise the cost can be hugely expensive