Another asset financier collapses.

Unfortunately I cannot disclose who just yet because its best to have confirmation of the details but there is a clue in the above dramatic photograph

They were only a small player and one I had had very little contact with. A conventional lender with an appetite for the ever risky trade finance

Until we know what apparently brought them down, then it will be hard to judge this as market led or just one of those things but its fair to say that the next 12 months could be quite bloody

Wirecard. Where was the “audit”?

What are auditors for?

Time and again we are seeing companies collapsing following repeatedly signed off accounts which are simply fraudulent and its not as if the accounting was difficult to unentangle

As this piece confirms, EY didn’t bother to check the bank statements for the account apparently holding a balance of $1.8 billion for three years. Read that back and again

Now the question is why such a basic fundamental procedure was passed over continuously and a bigger question is why were Wirecard seemingly confident that this would not be uncovered (until now)

Yes, I think we can guess the answer

The relationships between “auditors” and corporate clients is frequently disgraceful. the loser are the lenders and most especially the unsecured creditors.

Furthermore, if we cannot trust the veracity of audits and filed accounts for such high profile businesses, then the whole edifice crumbles

This needs hard and firm action

Growth Street. A disaster for the PTP sector

Growth Street were a very welcome addition to the PTP market. They had some great staff and I enjoyed a couple of happy visits to their offices. A good product too but not one that ever matched my clients requirements. For that, I can breathe a sigh of relief

Since that time, most of the people I met have left Growth Street and they have effectively closed their books to new business. That happens frequently enough in the volatile PTP market and generally the book gets sold on and the borrower isn’t greatly affected

Not this time. And I believe this is a big issue with serious repercussions

Growth Street are demanding that all their borrowers pay back the remaining balances of the loans within the next three months. With most of their competitors currently closed for business, this is disastrous for their clients at what is obviously a very difficult time. No wonder that this has hit the national press.

I would have sickened me if I had encouraged a client to take out a facility with them,

The obvious fall out from this is further mistrust and alienation from the PTP market. How do I address this question from clients ? “What if my lender ceases to trade?”

Growth Street currently have 117 outstanding accounts owing around £17m. These figures clearly didn’t support their infrastructure (70 staff reduced now to 50) and they made losses last year of near £2m

Wirecard calamity

For any credit manager assessing the credit worthiness of a client, the veracity of the balance sheet is absolutely key and has to be taken on trust. Thats why Pattiserie Valerie and Parmalat were so catastrophic for suppliers and lenders. The auditors had signed off fraudulent accounts

The sums in those two cases are simply dwarfed by this scandal coming out of Germany. Yes, Germany. We are often led to believe that business in the continental  north european states is always carried out impeccably but as with most generalisations, its complete nonsense

The missing sum from Wirecards balance sheet is E1.9 billion.

And how about this for corporate waffle

The company said it had previously mischaracterised its biggest source of profits and that it was now trying to work out “whether, in which manner and to what extent such business has actually been conducted for the benefit of the company”. It withdrew its most recent financial results and said other years’ accounts may be inaccurate.

But not as amusing as this

“The Management Board of Wirecard assesses on the basis of further examination that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist,” the company said in a statement on Monday.

Prevailing likelihood?  Well I think you will find its either there or it isnt

The missing money was supposed to be held in accounts at two Asian banks and had been set aside for “risk management”, the company said.

 

 

Invoice Financiers. This has got to stop

A little while ago I highlighted the issue of invoice financiers registering “brokers” against clients where the client has had minimal, if any, contact

This is now completely out of hand. Time and again i’m coming across clients who are adamant that certain brokers were not instructed. So called brokers and simply lying about contacts and then registering potential clients with lenders. I understand that this is particularly prevalent in the north of England

This squeezes out people such as myself who are seeking to find the best possible solution through thorough engagement. Simply passing on phone numbers is emphatically not brokering

One major independent lender is particularly guilty of this and I know that it causes unease amongst some of their staff. Another highly reputable lender that promotes itself as being particularly ethical is also guilty

ABFA or NACFB should be stepping in but I not inclined to hold my breath. They are not the most dynamic of organisations

So when will lenders take the initiative and bring some professionalism to the industry? Does this require national press coverage to spur action?

My solution is straightforward and simple. It makes perfect sense

No client should be registered with a lender unless the broker can produce one of these two requirements

1. A written communication confirming appointment of said broker. (email fine)
2. The broker can produce a current aged debtors from the client

Simple.

Does the industry still want to be seen as rackety and underhand? If not it needs to reform once again because this alone creates a  very shoddy image.

 

 

 

Will the recovery be quick? Morgan Stanley think so

In keeping with their famous Bull sculpture, Morgan Stanley have produced a bullish prediction of the recovery following the Covid trauma

This of course is one of a whole range of predictions but to my mind, there is some a degree of substance to their beliefs. Yes this is a recession with some alarming immediate figures (although many of these have been noticeably tempered in recent weeks) but the key is surely down to the fundamentals. There is no catastrophic crisis in lending availability and mismanagement as in 2008 and none of the  suicidal restrictions by hanging onto the gold standard as in the 30s.

But enough of my amateur speculation. These are the reasons behind Morgan Stanleys confidence

• This is not an endogenous shock triggered by huge imbalances
• Deleveraging pressures will be more moderate
• Policy support has been decisive, sizable and will be effective in boosting the recovery

 

Remarkable bank costs comparison

I will add that I have not verified these figures and they do represent a snapshot of one particular transaction but also a fairly standard transaction

No question that the variation in charges is huge even between the big four banks. Metro and Santander’s charges can only be described as shocking

Maybe there’s reasons for the disparity and they need context but its also hard to quite imagine what the excuses would be

Will “Bounce Backs” be recovered?

 

UK banks are warning that up to half of the £18.5bn of “bounce back” coronavirus loans are unlikely to be repaid and are lobbying the chancellor to prepare for the collapse of hundreds of thousands of small businesses, the Financial Times reported. Three senior bankers estimated between 40 per cent and 50 per cent

Quite extraordinary numbers and  this has been widely reported

And this goes on to echo my previously stated thoughts

Although the guarantee spares the banks from credit risk, executives are worried that pursuing through the courts hundreds of thousands of small, often family-run businesses — which have borrowed an average of £30,000 each — would be logistically impossible and a “PR disaster

I believe there is certainly some substance to this but I would hazard a guess that the default assumption is considerably overstated. Although I cannot quite grasp the motivation behind the bankers statements, its not an industry that lends itself to advice that isn’t self motivated and it would be right to sceptical

 

 

Why lenders are demanding strong management

 

When recently canvassing lenders, the issue of the quality of client’s management in the current crisis, was raised when it comes to assessing both new and existing clients. Of course, it has always been a significant factor and thats why most invoice finance lenders rightly wish to meet their potential clients but in these times its become more significant than possibly ever before

The lenders need to know that clients are well equipped for the current crisis which for most businesses are going to generate significant demands on decision making. This isn’t just applicable to businesses struggling but also those who are actually growing fast. I have one client that is booming in the current climate but is seemingly dysfunctional at board level much to the frustration of the Financial Director. The client has previously dug itself into unnecessary cashflow difficulties before and could easily do so again

What makes good or bad management can be a little subjective and as in life,  lenders can be seduced by personalities rather than ability but there will be closer scrutiny and possibly demands

I’ll always fight for the client but it is perfectly understandable that lenders are nervous about the quality of their lending books. There is likely too be a degree of movement in the next few months

Without wishing to generate any paranoia, the fact is that lenders are largely scrutinising accounts to a far greater degree than any time since the original “take on”

Clients will need to be responsive and clear about their plans. The requirement for professionalism and communication will be strong. Lenders are a little jumpy and this is certainly not the time to give the cause for concern

 

Why queue at IKEA?

Queues of up to 1.1km greeted the opening of IKEA yesterday. To my mind, this is extraordinary, especially given my natural horror of queues of any kind. The lockdown has certainly been tested my patience in that area of life

But what does this IKEA queue tell us?

There is the inevitable sneering from some quarters at “people with nothing better to do” of course but the fact is many people do like shopping and whilst online retailing has boomed during the crisis, its not the solution that everyone seeks

These are difficult times but retailers can surely take comfort from this.

The high street is certainly not dead