Alt Lending: Zombie companies, Bank Interventions & conflicting priorities for Alt Lenders

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Here is our pick of the 3 most important Alt Lending news stories during the week:

  1. Zombies are a major drag on the uk economy

New analysis from KPMG UK finds the rising prominence of so-called ‘zombie firms’ is threatening to cause a significant drag-effect on the UK economy.

Why it matters: Referring to Zombie companies Alex Brazier executive director at the Bank of England for financial stability is mulling over the idea of changes the rules to make it easier for firms to sell equity. This is largely related to the amount of investment in open ended funds which provide liquidity for punters. While this has nothing to do with Alt Lenders Mr. Brazier’s thought process seems to be more focused in maintaining employment levels than anything else regardless of  the performance and future prospects of the underlying concerns. He points out that over leveraged concerns are less likely to invest in either assets or people as a result and throws up the fact that large concerns are having to take bets over very long periods. Also true but it smacks a bit of maintaining the status quo rather than taking an innovative approach to the financing. After all a highly leveraged organisation that can only survive because interest rates are artificially low will just become a lower leveraged organisation with a marginally improved ROE and a set of disgruntled shareholders that will have taken the dilution. This, to me is where the  alt finance should be taking the lead and sponsoring project based initiatives using the infrastructure of existing businesses but not taking on any of the existing financial and other baggage. There is more than one way to skin a cat. I think the problem is largely around the lack of liquidity in the medium sized project based area and a lack of proper banking expertise in structuring the projects.

2. British Business Bank “should increase influence” in corporate life

‘We’re seeing a different economic world where the role of government is going to be central in the way the economy works,’ said Ron Emerson

Why it matters: On a similar note BBB is a state owned bank and its former CEO Ron Emerson thinks that it has a bigger role to play in corporate life. Of course COVID is the underlying reason for this with Government taking a much more paternalistic role in the market. I am not sure that I agree with this. We have seen in spades what the dead hand of government does when it gets its sticky fingers on things. I actually know Ron of old and think he is a very sharp operator and a first rate political manipulator as well as being a very nice bloke. It was interesting to read however that he has now thrown in his lot with Manchester based alt lending outfit B North which are currently trying for a banking licence. I took a look at the B North website which seemed to be focusing its strategy on the huge SME market and its USP was speed of decision making and getting cash to clients ASAP. A new Bank in Manchester is not a bad idea given the UK governments levelling up and I would much rather see the private sector taking a much more supportive role.

3. Virgin tucks away £ 42 million for toxic loans

Virgin Money has put aside another £42m to cover for potentially toxic loans amid fears of a spike in unemployment and the impact that could have on mortgage loans. The top-up, which includes a 62pc rise in provisions for defaults on mortgages due to “more cautious assumptions in relation to the outlook for unemployment” and house prices, takes Virgin’s total pot for credit loss provisions to £584m. The UK’s sixth-largest lender said it had “not yet seen any significant credit losses

Why it matters: The vast majority of this weeks Alt finance news seems to be, as usual, firstly about the number of new firms that are raising VC in order to fund their new businesses and secondly about existing lenders making increased loan loss provisions. This is certainly true in Virgin’s case but what caught my eye was the fact that they are making a large increase in  their provisions against potential mortgage defaults? This is of course prudent and as Virgin is now the UK’s sixth largest lender we can learn something from the stance they are taking. Their CEO says that the company has not seen any specific credit losses ”yet”  but nevertheless believes that things will get more difficult. At the same time however we see quite a lot of new lenders doing everything they can to push loans out of the door. This comes as a spokesman for Investment Bank Jefferies has opined that single purpose Digital lenders might be peculiarly threatened by the established bank players in the personal market. Food for thought?

Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. 

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