Monday 1 December 2008

They don't know what they're doing: Bank Lending

There has been much Press coverage over the weekend of pressure being put by Government onto the UK banks to encourage them to lend to small businesses. Peter Mandelson has styled himself a business champion (communists always do that, don't they?). Other ministers are 'cracking the whip' etc. Also there is speculation, probably true, that there will be a Banking Act in the Queen's Speech that will enforce banks to lend to smaller businesses.

And yet, for all that, Banks have been lending to small businesses. In fact, according to the British Bankers Association, £1 billion more than last year in the last quarter.

And this is despite the Banks being in total financial hock to either the Government or Foreign Sovereign Wealth Funds. For example, RBS has to pay back the Government preference shares at 14%, can't pay its executives what it likes and can't pay shareholders a dividend. Therefore the management rightly want it to be very cash generative to get rid of these onerous conditions.

That the new CEO, Hester, has decided to follow the Government mantra on mortgage repossessions and small business lending, reflects the 'secret' calls from The Prince of Darkness. After all, he owns 58% of RBS now and can call the tune.

My prediction is for a very difficult time ahead, now that the Government has its sticky mitts on the banks, it will interfere. And given that Government ministers know nothing about economics, incentives etc. it will be bad news all round. As a result many more small businesses will go bust and pension funds will suffer from low share prices and dividend payments.

Thanks, Gordon!


AntiCitizenOne said...

How about businesses like mine that are strongly cash positive (I saw this coming from b4 2005 and my Articles of association say no outside debt)?

My bank balance will be used to fund poorly run potential competitors at large risk to my account.

It seems that government = Moral hazard.

CityUnslicker said...

ACO - And so goes 'socialism'

James Higham said...

And this is despite the Banks being in total financial hock to either the Government or Foreign Sovereign Wealth Funds.

By definition then, that would not stop them lending. I'd like to seea profile of small businesses lent to though and how far the government reduces or waives the slug on them.

Anonymous said...

It's no problem if it impoverishes the Pension Funds - they'll just get nationalised too. And so on till sovereign default.

AntiCitizenOne said...

Did we forget Taylor Wimpey from our Goodbye list?

CityUnslicker said...

dearime, ah the argentinian solution

Aco, lots of people gambling badly on that shareprice

Anonymous said...

All our money is now guaranteed is this right.?.

Put your millions into the daftest highest rate, shadiest, strongarming, doorstop collecting, oil drum lane finance group and reap the benefits of 12% interest.
HMG will take the risk, well taxpayers will, so for savers ..its win win.

Aloysius Fekete said...

Alistair Darling is sending mixed messages.

Let's leave alone the implications of the unfunded liability resulting from a 100% guarantee.

But, what message is it sending savers who are increasingly plundered. My money is safe? But what about my interest? Am I still not exposed to delayed receipt of my funds as well?


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