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As the banks and bankers continue their enforced course of rehabilitation there still seems to be a frustration that lending to businesses and people has not been increased and the various fiscal stimuli and quantitative easing programmes are not manifesting themselves in real terms to real people and companies.
Clearly this seems paradoxical, given the taxpayer bailouts of our banks. The main issue for me however is not just the supply of credit, but the cost of getting it. It’s all very well and good the government pushing the banks to lend more but if that lending is prohibitively expensive for the recipient then it seems politically good, but in reality changes nothing.
A case in point is Silverfleet Capital’s acquisition of Kalle last week, which was certainly good news, but I draw attention to the comments of Neil MacDougall, Silverfleet’s chief executive,
“The margins [on the loans] are eye-wateringly expensive. But the problem is that no one really knows what the market norms are any more, because there have been so few deals done this year.”
It is certainly good news that there have been a few more private equity deals announced in recent weeks, but we must keep in mind that a few more than nothing is still not a lot. Raising debt, agreeing mortgage deals, extending facilities etc will certainly need to get easier and quicker before we see real momentum injected in to any recovery, but it also needs to be less ‘eye watering’ in cost and that, for me, is the real issue.
One final thought with regards to our great leaders strategy for financial recovery: does anyone else find it slightly baffling that the solution to a problem ostensibly created by borrowing and accruing debt beyond our means is to borrow and accrue even more? I find it quite amusing that bankers have been beaten up and chastised by the government for their short term outlook and strategies, but Messrs Brown and Darling think it prudent long term planning to build up a debt pile of 56%, quickly rising to 100%, of GDP. But then I never was any good at economics so what do I know?
Doug Baird is Managing Director and Head of the Private Equity Practice of Interim Partners.
August 26th, 2009 at 2:56 pm
Dear James
With respect to your comments on the government spending it’s way out of recession, I totally agree that this is sheer lunacy. The last time we ran up a debt of this proportion was during the war and we have never been able to pay it back and never will, perhaps the government has no real intention that we could ever pay the present borrowing back either!
I am an independent Interim Turnaround MD within the private sector, as well as a member of the PricewaterhouseCooper Turnaround Panel. Anyone rescuing a business in deep financial debt immediately stops all spending except the most critical expenditure, that means ‘all’ non critical spending. UK plc is such a business.
If all non critical UK spending was halted entirely for 12 months, all projects were put on hold, overseas aid was held, recruitment was held, overseas funding was held, etc,etc,etc, cut back on all costs to commercial levels, we are talking £ trillions, this would cause a lot of whining which we get anyway, but would allow all debts to be paid off in one single year. It would put this country back on it’s feet and make it the strongest economy in the world, and in just 12 months!
Now that is the correct solution which any good captain of industry would employ and recommend. So why do our leaders (tongue-in-cheek) not see this or adopt this – and there you have the real question we should be addressing, yes it is our leaders, and any that would take their place. I have always believed that those taking office should have served a mandatory period in a commercial business before taking responsibility for the decisions and biggest budgets of any UK business, those of UK plc.
The public sector must be made into a commercial public sector, and that is where we commercial interims must fight to influence the powers that be, to appoint us to implement the vital changes. We are up to it, nobody else is, it is a mammoth task, so the sooner we can break down the barriers the sooner we get started on righting UK plc.
I and many others of us desperately want to help. We have a lot of big convincing to do.
James, please let me know how I can assist in any way to ‘fight the good fight’ .
If you have any good ideas please get in touch.
best regards
Barry Allen
Interaxis Consultants Ltd
Office: 01527 877057
Mob: 07551 611249