Collapse of Monarch

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Monarch was the very first airline I flew on and I would suspect that that is true of many from my generation, so its sad news today that the airline has collapsed. I am sure that many would also be sad that it was Monarch and not a certain other airline that is very much in the current news.

Airlines have always been notorious credit risks. For many years airlines in the US seemed to spend half of their time in Chapter 11 and in europe we have seen many collapses including national airlines such as Sabena and Swiss air

The reasons for the high risk are manifold but tight margins and shifting patterns of consumer appetite are key factors. The reality here was that Monarch were very much tied in with a the fading world of the package holiday and were very vulnerable to competitors in a world of cheap flights and consumers organising their own “packages” online.

A key but underrated factor in all credit assessment is the debtors place in its market. This is not illustrated by balance sheets or fashionable algorithums (although a trend cross P and L and balance sheets is a possible indicator) but is about knowing the client and exactly where they stand and what their future is likely to be.

 

 

 

 

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More on Noel Edmunds. End of RBS?

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This story digs a little deeper and there are some quotes that cannot be ignored. Firstly this might be a bit hard to swallow but…

Quoting figures he said came from Lawrence Tomlinson, the author on a report on the scandal published in 2013, Edmonds said claims could amount to £100bn, around three times the group’s market capitalisation.

 

This of course was a significant story earlier this year although i believe the sentences were not harsh enough and there should have been action taken to bankrupt and seize every single asset of those involved

Edmonds’s involvement with the campaign group stems from his own experience with HBOS’s Reading branch, whose employees deliberately ran businesses into the ground.

In February this year, two former HBOS bankers were among six people jailed over the scheme.

But as I stated before this is by far the most significant point.

That resulted in a barrage of messages from business owners with similar experiences, Edmonds said, including an email containing the FCA report, which was also leaked to the BBC.

Edmonds said the FCA has written to him, telling him that publishing the report would be a criminal offence. The FCA has so far refused to publish the report, claiming it would not be in the public interest to reveal the full report. It has previously published a summary of the report.

If true, then we have a serious problem with the FCA.

How on earth can this not be in “the public interest”? The one certainty is that this will be leaked sooner rather than later and what appears to be a cover up will be a major story

 

 

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Noel Edmunds v the big banks

This story would appear to be set to run and run. Naturally it simpossible to comment until matters develop but I do wonder if some bankers at RBS are feeling a little nervous

Television presenter Noel Edmonds claims to have a copy of a secret report into allegations RBS bankrupted small companies to buy up their assets on the cheap.

The “Deal or No Deal” presenter said on his website he has “obtained” the Financial Conduct Authority (FCA) report, which the regulator has refused to make public.

I would also ask why the report isnt being “made public”.

That in itself could be the biggest issue of all

A story to watch

 

 

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Market update

I thought it would be a appropriate time to update some market observations. Naturally enough i do not easily divulge the identities of lenders but the observant would probably be able to draw their own conclusions

1. The major banks. Aside from one enthusiastic (overly?) player, there is a creeping feeling that the big banks are slightly drfiting away from invoice financing. One has changed its critieria for accepting brokers and yet another barely bothers to connect.

2. Peer to Peer. The woes at Ratesetter, collapse of Due Course and odd behaviour towards brokers by another player continue to demonstrate a market in a continual state of flux. Some are rushing to draw negative conclusions but I would disgaree. PTP is here to stay and is a vital addition to the market

3. The influence of PTP has woken up some traditional invoice finacers and now there is more felxibility than ever before. This is especially applies to export and services.
4. At lease one major independent lender needs to quickly re-evaluate its underwriting procedures. They are inadequate, dated and high handed. Until they understand client and broker anger, they will continue to lose market share. They will also struggle to attarct quality Sales staff

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Cobra Beer part 3

CourtroomThere is a further very useful summary of this high profile case here  .

This is an extract

the Court ruled that 4% was the maximum that should have been applied.The Court accepted that the clause gave Leumi ABL Limited the power to set in advance a percentage fee which would apply to all later recoveries but that there had to be some qualification otherwise it could be exercised oppressively or abusively. The Court held that Leumi ALB Limited was entitled to estimated costs but had a duty when applying the collection fee to make a rational estimate of its internal costs, taken into account the size of the ledger, its exposures and time needed to collect the amounts due and that in this instance it had not done so. On the facts presented to it,

As stated before, this has implications for the ABL lending market. “Collect out” fees are no longer guaranteed which gives the lenders less compensation in the event of a client’s failure. Naturally the consequence of that is that the lender should be more inclined to support the client through difficult times. Far be it for me to suggest that certain insolvencies have been engineered to enable a huge imposition of fees (in fairness this has never appeared to be the actual background to the Cobra case)

However there are probably more significant ramifications on a wider scale and this summary did interest me

This case indicates that the courts appear increasingly willing to scrutinise discretionary powers in commercial contracts

 

 

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The failure of “loans to businesses”

agamerica-ag-lending-farm-loan-applicationYou may recall that George Osbourne initiated a scheme whereby small business loan applicants turned down by the major banks had to be refered by them directly to peer to peer lenders. At the time I thought this was a pretty shoddy scheme created to garner headlines rather than actually assist businesses

That is not because I have any objections to peer to peer lenders but simply because it ludicrous to suggest thats the only alternatve. HSBC may clearly turn down something that Metro would do. Furthermore a PTP will certainly be more expensive than another bank.

PTP is however a decent option in many cases and although I am bound to say this, a professional broker should be able to advise whether this is the case or not

So how has this scheme performed? The answer is… appallingly.

Fewer than 3 per cent of the 8,100 businesses referred drew loans under the scheme championed by George Osborne, the former chancellor.

Furthermore the banks do not appear to be following this with enthusiasm and I believe rightly so

About 100,000 small companies are turned down for finance by banks each year, suggesting only a small proportion are being put through the scheme, which was unveiled by Mr Osborne in 2014 and launched last November

The fact is that if a bank cannot offer the loan then they should take the what goes round comes around view and offer impartial advice rather than being obliged to push the applicant in one direction. They also probably do not wish to feel repsonsible if the PTP option rebounds badly.

The scheme is a poorly thought through idea which ahs failed. it should be abandoned immediately

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Aldi. The good guys

3ALDI_Store_Exterior__RightAldi Aldi are cutting terms to 100 small suppliers to 14 days. This is reported in the Irish Times and its not clear whether this applies outside Ireland but either way, this is a move that seperates them from so many of their bullying competitors.

Aldi and Lidl have long had a good reputaion for looking after suppliers and this has made their contracts easy to finance. Lenders have a great deal of respect for them.

Whether this signals a change in market attitudes is unlikely and sadly its impossible to envisage certain chains treating their suppliers with anything but continuing contempt

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