A View on UK Economic Recovery; Bank Lending & SMEs:

Some interesting statistics flying around over the weekend what with the economy doing far better than expected it looks like the Bank of England governor may need to make a decision on interest rates in a matter of a few months. I am not sure Carney will be forced into making the decision that soon. He doesn’t strike me as a man who will be forced into any situation. The economy badly needs a long spell of stability and low interest rates, not a step into the unknown that a hike in rates would bring about. We have a fledgling housing market that is seeing a well-earned recovery and with wages still suppressed there is unlikely to be a return of a much feared ‘bubble’. Carney is more likely to link wages to inflation as a ‘get out of jail free card’ to get himself off the hook.

I may be proved wrong but I am hoping we don’t see any rates rising until well into Q4 2014 or early 2015.

Barclays decision to ‘transfer’ 800,000 of its small businesses away from free banking towards a charge based structure will do no favours for the already hammered reputation. Barclays insist the move will only affect about 250,000 businesses currently banking with Barclays – so that’s all right then. Business lending has never been a priority with the banks barring a few exceptions and is rarely more than 10% of any the major banks total lending. Major banks do not like lending to small businesses and never have to be fair to them and the Basel II rules make it more difficult for lending to take place.

Okay, so I understand business lending had risen slightly over the first half of 2013, but if you are already starting from a very low starting point then it’s not really great news. In any event, I now understand the percentage of lending to small businesses has fallen back by about a third to around 7% of total bank lending that may contribute towards businesses having cash-flow problems and seeking debt advice sooner, without the support they need from the banks. The bottom line is small to medium sized businesses are just not a core demographic for any of the major banks and the sooner businesses realise that banks are no friend to business the better.

Written by: Mike Smith

Banks; Friend, or Foe to SME's?

Having read over the weekend of yet another breaking banking scandal is it not about time these disgraceful fat-cats were seriously taken to task? As a company turnaround consultant I come into contact with the shameful banking practices on a frequent basis. This latest ‘revelation’ headlining the newspapers is not news to those of us in the insolvency business as there have been suspicions for years around the insolvency practices and banks. A lot has to do with the banking culture itself which has become more and more arrogant and remote from its original purpose – to lend and provide services to its customers.

Successive governments have had far too close a relationship with the banking heads. The most notoriously bad banking and political relationship was of course between Fred Goodwin, ex RBS boss and Gordon Brown, who has arguably been deemed "the worst chancellor ever".

Gordon Brown appointed Goodwin of all people to advise on the regulatory aspects of banking and sale practices and duly gave good old Fred a knighthood in gratitude. The appointment of Goodwin advising Gordon on banking regulation was not so much the blind leading the blind, as the equivalent of King Herod being asked to advise Mothercare on the latest range of comforters. It should not, therefore, come as any surprise that on top of the rate swap mis-selling debacle we now have this latest, equally shameful list of accusations against RBS of stealing property at an undervalue.

We come into contact with situations like this through our line of work and one example could be a recent case where a director was sold ‘insurance’ to cover his company against rising interest rates until, you guessed it, the interest rates fell and his cash-flow was destroyed. This was an interest rate swap product and even though he complained, he got nowhere with the bank and eventually the company went into default with his mortgage payments – the actual mortgage he had ‘insured’ and trying to protect.

The director had secured a RICS valuation for over £2m and yet, just one year later when the company, now starved of cash due to the horrendous interest rate payments he was paying to the bank, was forced into company liquidation. The bank appointed liquidators then sold the property off at a value of £800,000 knowing that my client had personal guarantees in place further protecting the bank. He not only lost his business but also his wife, having long suffered the pressures of supporting a stressed husband, she had finally had enough. He also lost his children and immediate access to those that made his life worthwhile. All this because greedy individuals looked after their own interests first and believed they had the right to do what they could with no thought that they may be doing wrong. But these ‘scams’ do not only involve bankers, they drag in the associated large insolvency practitioners who sit on the banking ‘panels’ as they may have too cosy a relationship with the banks. This may be another area for investigation by Vince Cable who appears to me to be one of the few politicians with any sense of integrity. 

Of course the newspapers rightly focus on the lost businesses and the hardship that this causes, but what it also does is knock our confidence in the established banks and the establishment itself to an extent. It is hardly surprising why banks are so despised; try getting a commercial loan, or worse a mortgage and the banks get tighten-up. Any mortgage applicant is treated like a criminal as they have the audacity to dare borrow money to improve their lot. 

Of course this would be funny if there wasn’t a more serious side to it and the serious side is the human fall-out of the pressure that these scandalous banking practices bring about. The fact that the Co Op Bank, set up to serve its members has been brought to its knees with £1.5billion gap means pensions will be underfunded and genuine investors will lose money. 

The banks have a lot to answer for and there does not seem to be any end to these banking scandals that have hit every man woman and child in this country and arguably the western world. The bigger question is what do we do to put this right? 

Written by: Mike Smith

Barclays bank makes £2.45 billion profit

In the first #quarter of this year #Barclays made a #profit of around £2.45 billion which is well ahead of their expectations.

#Barclays took a £300m hit to cover payment protection mis-selling claims, which has become a major cost in recent moths for most #banks.

In a bid to deal with the problem, it set aside a £1.3 billion cushion after a rise in #PPI claims.

It said the unexpected success were largely down to the UK's retail #banking division and Barclaycard, which both performed well.

Barclays chief executive Bob Diamond has been criticised over his £17.7 million pay package for 2011, which is expected to come under increased scrutiny at the bank's annual meeting on Friday despite recent moves to subdue a #shareholder rebellion.