Why this matters. So the easing of fed policy announced at Jackson Hole is already causing concern within the ECB as the Euro continues its inexorable rise. The ECB have now confirmed that there will be no more stimulus is the touch paper for the latest appreciation which is inappropriate to say the least. The principal concern is that once the immediate increases in economic activity within the Euro zone the so called “v” shaped recovery have evaporated then the going will get extremely tough for any number of euro zone countries trying to rescue their already savaged economies from the impact of COVID 19. The ECB’s concern is that all will be left is a shrunken economy and mass unemployment and they have made their concerns clear through the ECB’s chief economist Philip Lane who last week attempted somewhat clumsily to talk down the Euro by stating that the Euro-Dollar exchange rate does matter. Uncontroversial in normal times but it upset the policy makers in Berlin. Of course nobody knows at this point the amount of structural damage which has been done to the zones economy but it is almost certain that bankruptcies will be everywhere and the current level of stimulus provided by the ECB is clearly not sufficient and doesn’t even kick in until next year. That the exchange rate is clearly not appropriate for some of the weaker economies is not necessarily contested but the drift of policy into negative rates is impacting on the stronger economies as well. The German Landesbanken that largely supports the huge Mittelstand are complaining that negative rates of interest are destroying their business models. Indeed for a continent that has so many banks with huge non performing loan portfolios and has many countries in deflationary territory it could be catastrophic.
Why this matters: Back to the future. The re emergence of instalment credit. What caught my eye about this story in Payments is that it seems to be like a relic from a bygone age. Time to pay has always been a feature of the consumer credit space. Back in the 1950’s and 60’s buying a capital item such as a three piece suite or a television was more or less impossible without credit and many families used to buy everyday items like clothing from catalogues the principal feature of which was payment by instalments usually weekly over a fairly short period. With the advent of Credit cards this method of finance became a rarity but it is now making a comeback and the article specifically mentions fashion houses as being one of the principal beneficiaries. To me it might just point to a subtle shift in the consumer space where punters are taking the risk in getting into debt a lot more seriously and are therefore deferring payments wherever they can. As for Alt lenders building portfolios this is something to keep an eye on. E commerce sales during the pandemic rose very sharply. Money was a lot tighter just after the war. Time to pay on everyday items might just be the beginning of a trend where every penny is valuable. Those interested should take a look at Fintech Afterpay.
Why this matters: Deloitte being one of the big 4 accounting and consultancy companies in the UK have been told by financial regulators to do this as they feel that the connection between the boring and less profitable accounting and auditing function of their activities might just have an impact on the much more juicy consultancy activities and might therefore lead to them turning a blind eye to some of the more obvious weaknesses shown in audited financial statements. They can point to a whole series of recent embarrassing failures including Carillon, Patiserrie Valerie and BHS. Being of a certain age I have also not forgotten Equity Funding Corporation and Enron, which of course, sealed Arthur Andersens fate. What has this got to do with Alt Lending. My take on this is as follows. Since QE started and hard hitting regulation bit in 2008 banks have gradually withdrawn from what used to be their traditional lending markets and left a huge gap in the market which has largely been filled by consultants and at the lower end Alt Lenders. The only difference is that the banks had skilled lending experts who knew how to put together structured finance deals at both the top of the market and the much unloved smaller but still substantial end of the business. That expertise is still there but is not deployed. Consultancies are very expensive, do not take risks but banks and lenders do. How are the smaller leveraged deals ever going to get done? Nobody is benefitting from this except the very rich.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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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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