A blog from my late father about the banks

The opening today is brought to you by my late father. You see he was a plastering sub-contractor who was a mild man but could be brought to ire by the subject of how he had been treated by the banks. He used to regale me with stories about how to keep the relationships going he would be forced to take loans he didn’t really want in the good times and then would find they would not only refuse loans in the bad but ask for one’s already given back. He only survived the 1980-82 recession because of an overdraft for company cars he was able to use for other purposes which they tried but were unable to end. So my eyes lit up on reading this from the BBC.

Banks have been criticised by firms and MPs for insisting on personal guarantees to issue government-backed emergency loans to business owners.

The requirement loads most of the risk that the loan goes bad on the business owner, rather than the banks.

It means that the banks can go after the personal property of the owner of a firm if their business goes under and they cannot afford to pay off the debt.

Whilst borrowers should have responsibility for the loans these particular ones are backed by the government.

According to UK Finance, formerly the British Bankers Association, the scheme should offer loans of up to £5m, where the government promises to cover 80% of losses if the money is not repaid. But, it notes: “Lenders may require security for the facility.”

In recent times there has been a requirement for banks to “Know Your Customer” or KYC for short. If they have done so then they would be able to sift something of the wheat from the chaff so to speak and would know which businesses are likely to continue and sadly which are not. With 80% of losses indemnified by the taxpayer they should be able to lend quickly, cheaply and with little or no security.

For those saying they need to be secure, well yes but in other areas they seem to fall over their own feet.

ABN AMRO Bank N.V. said Thursday that it will incur a significant “incidental” loss on one of its U.S. clients amid the new coronavirus scenario.

The bank said it is booking a $250 million pretax loss, which would translate into a net loss of around $200 million.

Well we now know why ABN Amro is leaving the gold business although we do not know how much of this was in the gold market. Oh and the excuse is a bit weak for a clearer of positions.

ABN AMRO blamed the loss on “unprecedented volumes and volatility in the financial markets following the outbreak of the novel coronavirus.”

Returning to the issue of lending of to smaller businesses here were the words of Mark Carney back as recently as the 11th of this month when he was still Bank of England Governor.

I’ll just reiterate that, by providing much more flexibility, an ability to-, the banking system has been put in
a position today where they could make loans to the hardest hit businesses, in fact the entire corporate
sector, not just the hardest hit businesses and Small and Medium Sized enterprises, thirteen times of
what they lent last year in good times.

That boasting was repeated by the present Governor Andrew Bailey. Indeed he went further on the subject of small business lending.

there’s a very clear message to the banks-, and, by the way, which I think has been reflected in things that a number of the banks have already said.

Apparently not clear enough. But there was more as back then he was still head of the FCA.

One of the FCA’s core principles for business is treating customers fairly. The system is now, as we’ve said many times this morning, in a much more resilient state. We expect them to treat customers fairly. That’s what must happen. They know that. They’re in a position to do it. There should be no excuses now, and both we, the Bank of England, and the FCA, will be watching this very
carefully.

Well I have consistently warned you about the use of the word “resilient”. What it seems to mean in practice is that they need forever more subsidies and help.

On top of that, we’re giving them four-year certainty on a considerable amount of funding at the cost of
bank rate. On top of that, they have liquidity buffers themselves, but, also, liquidity from the Bank of
England. So, they are in that position to support the economy. ( Governor Carney )

Since then they can fund even more cheaply as the Bank Rate is now 0.1%.

Meanwhile I have been contacted by Digibits an excavator company via social media.

Funding For Lending Scheme was crazy. We looked at this to finance a new CNC machine tool in 2013. There were all sorts of complicated (and illogical) strings attached and, at the end of the day, the APR was punitive.

I asked what rate the APR was ( for those unaware it is the annual interest-rate)?

can’t find record of that, but it was 6% flat in Oct 2013. Plus you had to ‘guarantee’ job creation – a typical top-down metric that makes no sense in SME world. IIRC 20% grant contribution per job up to maximum of £15k – but if this didn’t work out you’d risk paying that back.

As you can see that was very different to the treatment of the banks and the company was worried about the Red Tape.

The grant element (which theoretically softened the blow of the high rate) was geared toward creating jobs, but that is a very difficult agreement (with teeth) to hold over the head of an SME and that contribution could have been clawed back.

Quantitative Easing

There is a lot going on here so let me start with the tactical issues. Firstly the Bank of England has cut back on its daily QE buying from the £10.2 billion peak seen on both Friday and Monday. It is now doing three maturity tranches ( short-dated, mediums and longs) in a day and each are for £1 billion.

Yet some still want more as I see Faisal Islam of the BBC reporting.

Ex top Treasury official @rjdhughes

floated idea in this v interesting report of central bank – (ie Bank of England) temporarily funding Government by buying bonds directly, using massive increase in Government overdraft at BoE – “ways & means account”

Some of you may fear the worst from the use of “top” and all of you should fear the word “temporarily” as it means any time from now to infinity these days.

This could be justified on separate grounds of market functioning/ liquidity of key markets, in this case, for gilts/ Government bonds. There have been signs of a lack of demand at recent auctions…

Faisal seems unaware that the lack of demand is caused by the very thing his top official is calling for which is central bank buying! Even worse he seems to be using the Japanese model where the bond market has been freezing up for some time.

“more formal monetary support of the fiscal response will be required..prudent course of action is yield curve control, where Bank can create fiscal space for Chancellor although if tested this regime may mutate into monetary financing”

Those who have followed my updates on the Bank of Japan will be aware of this.

Comment

Hopefully my late father is no longer spinning quite so fast in his Memorial Vault ( these things have grand names).  That is assuming ashes can spin! We seem to be taking a familiar path where out of touch central bankers claim to be boosting business but we find that the cheap liquidity is indeed poured into the banks. But it seems to get lost as the promises of more business lending now morph into us seeing more and cheaper mortgage lending later. That boosts the banks and house prices in what so far has appeared to be a never ending cycle. Meanwhile the Funding for Lending Scheme started in the summer of 2012 so I think we should have seen the boost to lending to smaller businesses by now don’t you?

Meanwhile I see everywhere that not only is QE looking permanent my theme of “To Infinity! And Beyond” has been very prescient. No doubt we get more stories of “Top Men” ( or women) recommending ever more. Indeed it is not clear to me that a record in HM Treasury and the position below qualifies.

he joined the International Monetary Fund in 2008 where he headed the Fiscal Affairs Department’s Public Finance Division and worked on fiscal reform in a range of crisis-hit advanced, emerging, and developing countries.

 

 

34 thoughts on “A blog from my late father about the banks

    • No but lets see how they act towards to the public when someone has been badly hurt through no fault of their own and the banks want an unfair interest rate or do anything to make someones financial situation worse.

      In the meantime although the banks today maintained a 0.10% interest rate they have said they would act further if needed and its not been ruled out by the press that rates could still go negative.

      https://www.investmentweek.co.uk/news/4013140/bank-england-holds-rates-warns-sharp-uk-downturn

      There must be plenty of very high worth individuals who are still sitting on mega cash having taken their money out of other assets and could help prop up the economy. If its not by negative interest rates it needs dealing with through higher taxation. All this borrowing will have to be paid back and the most able to pay should do so.

      • FT

        “Banks in talks with ministers to freeze housing market:”

        https://www.ft.com/content/4ac1266a-436d-3128-b068-2d68ddc1485c

        Little point in buying in this market when the country is going into lock-down and moving furniture almost impossible as people should not be moving about.

        The builders will be hit further if this goes ahead you cannot have a duel market giving preference to the builders in an unfair market, when the private buyers cannot sell.

        The builders have made massive amounts of money the last few years and I have little sympathy with their position.

        • Latest report is that the govt has now done this – in part, because bank call centres have been flooded with people requesting mortgage holidays. Anyone would think that the housing market was about to tank just as the delayed jobs shakeout begins. Not long after the 08 crash, I was talking to a ref con. I said I was surprised that so many jobs existed and few people were layer off. He said that there was a folk memory of 1992 and the costs of reemploying the same people back on contracts. With ultra low rates and stagnant wages for more than a decade, this has continued, but reality to about to draw and what should have happened over twelve years is about to take one.

    • I had an overdraft pushed on me by Lloyd’s in the Lawson Boom of the late 80s. When it turned sour, I actually needed to use it and of course, the threatening letters started. Private Eye published a cartoon with the ribbons that used to rise from the black horse’s back turned into a highwayman. I sent a copy to Lloyd’s and they invited me to take my business elsewhere – after I had been a loyal customer for over ten years.

    • Why wouldn’t they be utterly parasitic when profits are privatised and losses are socialised.

      Its surreal that for the last 12 years the global government party have allowed and cheered this on, despite any man in the street with a basic understanding of economics (excluding most in the MSM) pointing out this insanity.

  1. I have applied to Lloyds under CBILS. They have used every excuse not to lend, which I have rebuffed but to no avail:
    1.) You are not an eligible trading business
    2.) You have security (what good is it if valuers are not working, lawyers are at home, Council are available for land searches, the Land Registry is closed)
    3.) We dont have a product that fits (I asked for an overdraft)
    4.) Its not my department (you are my relationship manager or else do I ask)
    Ultimately they dont want to write the business.

    • Hi Nicholas

      It is the same basic problem just with a modern spin I am afraid. Another saga my father regaled me with was one time he asked for a larger loan and rather than his normal branch at Southampton Row he was called to the City for lunch. He got all his figures ready and was wondering what was going on as a director of the bank turned up?Don’t worry old boy he said if you are here it means you have got your loan and tucked into his lunch.

      So they even managed to mess up giving him lunch! As he had experienced an unnecessary sleepless night or 2 getting ready for it.

  2. As I said yesterday, Friedman said there is nothing so permanent as a temporary govt programme.

    At the other end of the intellectual scale, on ConservativeHome a second generation Asian doctor has said all this NHS volunteering could be “our finest hour”. Aside from that actually being down in no small part to Polish pilots, I wondered if this doctor had amnesia as just a month ago, Matt Hancock was proposing a tax on over 40s to pay for granny’s social care – because the family/community could not be bothered.

    In this hysterical world we are now in, of course, the deification of property continues. No analysis of whether your business is any good or reliance on the risk-management skills of the Loan Officer, just “have the cash and if it goes wrong, we will take your pile of bricks”. Not had much money for a pile of bricks because you put your cash into the business – then bad luck, as you cannot put up much security. All sorted for property companies, for which owning piles of bricks is what they do. It brings us back to the central issue of incentivisation ( or being fired for pointing it out! Cheers, Barclaycard). The PPI mess was largely caused by bonuses being offered to badly-paid staff, who then pushed it on people, who did not need it or covertly put a cross in the form box without the customer knowing. It is the same for all lending. Likewise, the sole quantified of the loan size is the value of your house – so that rewards people, who have bought the biggest pile of bricks they can afford and penalises those, who have invested in the business, their skills etc. Which also attract more tax on the gains. Everything is fine, while the loans can be paid back, but the descendants of Nick Leeson run into problems when it goes wrong.

    Anyway, I came across this, which is actually about nuclear war, but sums up the madness of the times we are living in:

  3. Unless, the Government makes these loans freely available, within three months, there won’t be any business to lend to – including mine!

    • The USA will go back to work next week then the rest of Europe will follow.

      Do wonder if people will start saving for a rainy day instead of buy stuff they don’t need with money they haven’t got.

      • buy stuff they don’t need with money they haven’t got., to impress people they don’t like or care for …….

        🙂

  4. Apropos of general background, BoJo called the lockdown on 24th, the attached appeared on Gov.com on 22nd, relating to decision on 19th.
    Status of COVID-19

    ”As of 19 March 2020, COVID-19 is no longer considered to be a high consequence infectious diseases (HCID) in the UK.

    The 4 nations public health HCID group made an interim recommendation in January 2020 to classify COVID-19 as an HCID. This was based on consideration of the UK HCID criteria about the virus and the disease with information available during the early stages of the outbreak. Now that more is known about COVID-19, the public health bodies in the UK have reviewed the most up to date information about COVID-19 against the UK HCID criteria. They have determined that several features have now changed; in particular, more information is available about mortality rates (low overall), and there is now greater clinical awareness and a specific and sensitive laboratory test, the availability of which continues to increase.

    The Advisory Committee on Dangerous Pathogens (ACDP) is also of the opinion that COVID-19 should no longer be classified as an HCID.”

    https://www.gov.uk/guidance/high-consequence-infectious-diseases-hcid#status-of-covid-19

    Joined up thinking obviously. Perhaps ‘thinking’ is a bit OTT.

  5. Hello Shaun,

    re: “It means that the banks can go after the personal property of the owner ”

    well yes since year dot the TBTF Banks have been only interested in your pile o’ bricks, haven’t they? ( and two small children as collateral apparently ) .

    mean while the local ASDA has petrol at 10.2.7 ltr and the Q to shop was 30 minutes only to find no bog roll , eggs, flour , rice or pasta. ok for greens though and Easter eggs !

    Forbin

    • Just been down to Iceland. They have a bloke on the door enforcing the (oh!) 2 metres rule now. Woman in front stops to get something halfway down the aisle – I walk straight past as I am headed for their wonderful Sicilian lemon juice – two reasons why I shall be dead in a week no doubt!

  6. Latest anecdotal news from Occitania, received a ‘suicide’ note from La Poste today. As everyone is locked up, they have decided to go on a 3 day week from Monday and only deliver ‘vital’ post/packages. The laughter from GLS, DPD, etc etc was heared resounding from the pyrenees. Shame ,I liked some of our postees.
    Our esteemed leader is still cogitating over extending the house arrest. His ‘experts’ are recommending 6 weeks, he’s probably thinking about his neck!

    • Hi JimW

      The post is still going strong here and respect to them for it. I ordered some new contact lenses and whilst they took longer to arrive than usual that is perfectly understandable.

      As to tonight we have just had a clap for the NHS which got a lot of support on my road. Although ironically the one NHS worker I know had to miss it as she got involved in putting her young daughter to bed.

  7. Hi Shaun
    My late father always said that after something bad
    had happened it was all good experience,I doubt
    he would say it now.
    I was self employed from 18 to 65 so I have experienced
    most things good and bad but this time EVERONE must
    be supported or does even UBI exclude some people?
    I’m keen to know what might happen after the outbreak
    has peaked, our masters would wish a return to more of
    the same I doubt that and think high inflation and higher
    base rates are coming.

    JRH

      • Replacing all the Brexit-voting grannies! My YouTube feed has developed gallows humour – alongside a Sky report on the UK death rate is Queen: Who wants to live forever.

    • I don’t understand why someone staying at home gets more TAXPAYER money if they are employees or self-employed (so not working), than someone staying at home if they are unemployed (so not working).
      Remember that, in order to claim JSA you have to ACTIVELY seek work.

  8. Hi shaun
    Just had a call from son in law who has worked
    for a successful company for four years and is
    now on the 80% scheme which is a blatant
    abuse . Hopefully the government
    will realise this but still the company is deferring
    costs and therefore still gaining an advantage .
    Alternatively those recently self employed people
    who have failed to make a living and therefore
    frightened to fill in annual tax forms are shafted
    until June!
    JRH

    • Hi JRH

      There are always those sort of issues with something on this grand scale. Rip-offs combined with some missing out. But I think the gist of the policy is in the right direction so I am willing to give it more slack than the banking situation which is the same as ever.

  9. Shaun, thanks for sharing the story about your Dad. I find that it’s always interesting to get the perspective of other generations experience/thoughts when examining current goings-on. Very often illuminating, and confirmation of something very valuable that my Dad used to tell me…”there’s nothing new under the sun….”

    • Hi Jonathan

      He hated the banks with a passion after the decades of experience. He could have whatever he wanted in the good times when he needed little but could get nothing when he did. It was the reverse of the banks because his business was sound but needed liquidity whereas they are the reverse.

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