Are “new” lenders running scared?

Maybe its just my limited recent experience or maybe its a developing trend but I’m regularly encountering increasingly negative responses from certain lenders and this is most prevalent amongst the “new” lenders in the asset finance sector.

I hasten to add its not this certainly doesn’t apply across the board but responses have been a mix of the following

1. Two invoice finance lenders supposedly seeking business have barely returned messages or attempted to engage when approached. An unimaginable situation in the market of say five years ago.
2. A recently increasing reversal to hostility to certain sectors which is lazy underwriting at its worst (accepted that construction and others can be very specialist)
3. An unwillingness to explore solutions for fundamentally sound but slightly complex arrangements even when these are potentially very valuable
4. Very lukewarm responses in equipment finance from certain lenders (what do the staff responsible do all day?) with admittedly a couple of notable exception

It might be Halloween but I doubt that’s the real reason..

Capitalism without Capital

This might not appear to be light bedtime reading but its beautifully and entertainingly written (without slipping into a tiresome jokey mannerism) and addresses perhaps the most vital micro economic/finance issue of our times.

Businesses have long moved on from simply calculating their assets purely on the easily quantifiable but the finance industry has found it very difficult to keep pace. The whole issue of lending against intangible assets is still an anathema and yet it is is often the most valuable asset on any balance sheet. And increasingly so as this excellent book rightly points out.

I will be returning to this subject

 

 

HSBC. The future is ?

HSBC have always stood a little apart from the the other major UK banks. To their credit, they required no bail outs in 2008 and their service is perhaps viewed as being a cut above their direct rivals, although the responses can be slow. Less creditably they’re the only significant lender that does not pay commission to brokers and whilst this has not stopped me engaging and finding solutions with them, its an approach which perhaps indicates a lack of hunger in the SME market. Very good contacts of mine at HSBC do agree that its an odd policy.

It would appear that they have had some very disappointing results and whilst I would like to think its because they have not sought referrals from myself, I believe its unlikely that that is the main reason

Significant job cuts have been mooted but I will be watching closely at the future of their asset finance offering. A year ago they were seemingly undercutting everyone to a slightly ridiculous extent but I now hear that prices are on the rise.

More significantly they apparently can close to closing their invoice financing offering a couple of years ago.

Could this be the catalyst to do so this time?

 

 

 

 

 

Stumbled into an office….

….where there had been a powerpoint presentation

 

This was actually at a client of mine. A very good client too but in an unusual sector

The end of the “ban on assignment”

The Ban on Assignment has always been a pernicious clause imposed in certain contracts for little obvious benefit. Fortunately its days are over and here is a brief summary

Historically, contracts for supplies of goods or services often contained clauses that prevented one party transferring a right, under a contract, to another party. The introduction of the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations) is therefore to be welcomed as it attempts to redress the difficulties faced by businesses, where such clauses restrict their ability to raise finance.

The Regulations apply to specific contracts entered on or after 31 December 2018 and apply to clauses contained within such contracts that seek to prohibit or restrict the assignment of a receivable under the contract, which is a right to be paid for goods, services or other intangible assets.

The Regulations are limited and only apply to contracts, where the supplier or seller, is a small or medium sized enterprise (SMEs), as defined by legislation.

The key provision to the Regulation is that any clause that bans the transfer of a right to another party is now unenforceable. This extends to other terms that impose conditions on the ability of one party to determine the validity or value of the receivable i.e. the goods, services, the debt, or their ability to enforce payment. Indeed, there are now 13 categories, which contracts cannot now restrict.

With these exemptions the third of which, if I have read it correctly,  surprises me somewhat

1. Contracts for the provision of financial services.
2. Contracts for energy, land and certain other commodities
3. Contracts to acquire a business or an interest in a firm
4. Contract for differences or other derivative contracts
5. Any contracts where the business the subject of the contract is not being carried out in the UK

More businesses in “distress”

According to Begbies the number of businesses in “distress” has climbed by 40% since 2016.

The number of businesses in significant distress is now 489,000 – an increase of 22,000 year-on-year and a rise of 139,000 since the referendum.

The real estate and property, construction, retail and travel sectors are the most severely affected, says new research from insolvency experts Begbies Traynor.

It could be argued that retail is facing other challenges which have little to do with brexit and that property had perhaps got past a natural peak. Construction is highly cyclical anyway. Either way its a significant figure but we have to trust that they are using the same criteria. Naturally there has been a lot of scepticism regarding certain statistics from bodies inclined towards “remain” sentiments but it is hard to argue with the following comment

“Much investment is on hold as businesses have their hands tied by not knowing what the state of play will be post-Brexit and whether the agreements or contracts they currently have in place will still be valid following the expected withdrawal, which is contributing to stifled growth nationwide.”

 

EU withdrawal. Baffled or bored?

Even for those of us who follow these events pretty closely, its easy to lose sight of what the actual plans are and how they will be implemented. Now that a deal appears to be imminent, its time to recap. This summary on Wikipedia  is as concise and clear as you could hope to find.

Thomas Cook. Bonus for failure

The last thing the business world wants is for the state to dictate how they reward their employees and directors and this is an especially pertinent issue with calls from all parties for greater responsibility demonstrated by directors.

At the same time the business world hardly appears to be able to think beyond its latest pay packet. It sometimes appears that it is determined to make accusations of greed and self interest stick

So we now have a  £500k bonus for a director of a business that has failed. Yes he may have “worked hard” and yes he may be “considering” returning the cash but thats hardly the point. He was appointed on a very high salary to “work hard”

Bonuses should surely only be allied to positive results not for simply turning up

 

PWC complacent? Why this is a concern

Thomas Cook has once again brought the audit profession into the spotlight. At this point it would not appear that the issues are likely to be as severe as with Patisserie Valerie of even Carillon but theres seemingly going to be some scrutiny of various “exceptional items” on the balance sheet.

Some will still question why this actually matters and its true that Thomas Cooks trouble had been known for some time. However then truth is that faith in published accounts is absolutely crucial for the credit and lending sectors, be they banks or simply suppliers. If that trust collapses then a collapse in the availability of lending will simply follow with huge ramifications for business

This year auditors have been penalised like never before but is it enough? Sadly I am not sure that the big firms have quite grasped the problem as these quotes demonstrate
“The expectation of the market [for an audit] is above the regulatory requirement,” said Bob Moritz, global chairman of PwC. “When big failures happen, it is not necessarily an audit failure. The controls might be appropriate, but the continuation of the business, its financial position and long-term sustainability can still be in question.”

This is total nonsense. Auditors are obliged to submit a “going concern” judgement and they certainly haven’t been in many high profile cases but also trying to claim that the failures of the businesses is purely being blamed on the auditors is completely missing the point
“We are continuing to invest in improving audit quality so we do not see the need for significant change [to our business],” Mr Moritz said. “Any proposal to move in that direction is inappropriate and ill-serving.”

Well thats ok then isn’t it?
Mr Moritz said he believed recent changes to its UK business, such as splitting its audit and assurance business, was “sufficient” to convince MPs not to force a break-up of the Big Four. “If we continue to improve and keep doing what we’re doing, I think the risk [of a break-up] is minimal at best,” he said.

Really?

Dreadful BBC Brexit piece

There is no excuse for this awful piece. Whichever side of the divide you were on, misinformation does no one any favours. Many of us were neither particularly strongly one side of the other (summed up nicely in this excellent article)

The premise of the BBC’s video is that forecasts that the UK would go “into recession” after the Brexit vote were in fact “accurate” because the UK hasn’t grown as strongly as it “should have done”

This is total rubbish. That is not the definition of recession by anyones measurements. Recession is two consecutive quarters of negative growth. This has not happened

And how fast we “should have grown” is pure conjecture. Does this dismal analysis take into account that other EU economies have also been relatively sluggish?