Notes on a scandal
So farewell then Woolworths, MFI and Miss
Sixty. A retail bloodbath, rather than Christmas, has come early
this year and who's to say who's next?
Paver Smith has
crisis-managed four company failures in the last three months and
continues to tackle unfounded, often wild rumours about the
fortunes of sound businesses which are trading quite successfully
thank you very much.
In my experience the market uncertainty has a
curious leveling effect. Senior bankers, time-served lawyers,
battle-weary manufacturers, pensive developers, amazed accountants
- nobody is quite sure how the credit crisis will play out.
This week I had the salutory experience of
listening to one of the region's leading bankers describe three
typical responses to the turmoil.
PLCs and/or firms with heavyweight financial
directors are now looking at their finance for the medium and long
term - doing deals or restructuring arrangements because they fear
the lack of liquidity will only get worse. They are swallowing the
pill of higher charges and fees because they are worried about the
availability of money in six/twelve months.
Many SMEs and family run-businesses struggle to be
so far-sighted. The problem is partly one of comprehension. They
simply don't understand that the fundamental issue across the
banking world is (apparently) the disconnection between LIBOR and
the base rate (check it out
here).
This issue manifests itself in the astonishing daily reality of our
times that banks are unwilling to lend to each other because they
can't be sure the debtor will be good for the debt.
The other dynamic is fear. Smaller
companies find it harder to plan and readjust to uncertain markets
because that usually means being open with your bank or funder.
Surprise, surprise, there's an instinct to keep your head down
when some of the most famous names in British business are going to
the wall or announcing profit collapses of 90 per cent or
more.
The banker's advice was to keep faith in your
bank, to cut costs….and to follow the other sound business
sense available in any of the credit crunch survival guides out
there.
The twist…the Friday the 13th
Jason coming out of the lake and dragging you under…was that
none of this will help if you are really hurting and bank with the
one unnamed financial institution which has adopted a particularly
ruthless response to customers in trouble. I think everyone in the
room knew who he was talking about.
Even if your relationship is with a more
benevolent lender, it's clearly a bad time to breach. I was
told of one company which made a technical breach of its overdraft
arrangements and was charged £500,000. When the financial
director complained about fairness, he was told, 'Pay up or
find another bank.'
And of course our tarty and promiscuous ways with
consumer debt, moving loans around interest free credit cards (been
there, done that) is but a reflection of what's been happening
in the world of international banking for years. What happens when
this process grinds to a halt. What's the deal when there's
no one else to borrow from? As my banker friend told me, "We
don't know that because it's never happened
before…"
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