The sad story of Amigo continues as it tries to do a deal with its borrowers. Amigo looks to be a basket case and what makes it interesting is that the whole business proposition is based on a highly risky premise. Amigo and its backers have created a portfolio of borrowers who were never creditworthy in the first place but who have persuaded creditworthy friends and family to provide guarantees. The company then lends at effective rates of nearly 50% over base rate. When the going was good it worked after a fashion but the nosedive the economy has taken since COVID has caused the guarantors to be reluctant to be a bit more circumspect once they are asked to actually put their hands in their pockets rather than just sign bits of paper. As any proper banker will tell you a guaranty is not collateral and is much harder to collect. Just ask one of your fair-weather Amigos.
I suppose this outcome had an inevitability about it and Cerberus’s reputation and the hysterical reaction of some politicians about the buyer’s credentials and business approach would fit in with a so called ethical lender didn’t help. Nevertheless Co-op bank still needs a helping hand and it is difficult to see where it might come from. Perhaps the virtue signalling cliques of ultra celebrities and Premiership footballers might come to its rescue but somehow I doubt it. It is a shame because I think there is room for a more ethical approach to lending but at the end of the day it’s the net interest differential that counts and there has never been too much room for sympathy where that is concerned.
The story here is in some way connected with the commentary on Co-op bank’s failed rescue. Metro had to meet key regulatory minimums and so sold a third of its residential mortgage portfolio to NatWest. According to the bank it can use the funds to pursue unsecured lending opportunities. Like all newcomers in these difficult and some might say overregulated times banks who are on the wrong side of arbitrary balance sheet ratios are not in a great position. Firstly there valuations are not great and secondly they are operating in a buyer’s market. Just ask Cerberus? There will be a lot of vultures in the market for second hand assets in the coming year all over Europe. Any technology that makes this activity more transparent and easier to manage is going to be very well received. As for the sellers don’t expect to receive the offer. You’re probably going to be left with the Bid.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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