In January 2019 Patisserie Valerie a chain of nearly 200 upmarket coffee and cake shops spectacularly collapsed. This was allegedly caused by fraudulent accounting within the company and has resulted in some criminal charges against company executives. The interest thing is that the allegations of fraudulent accounting go back a couple of years but nobody seemed to notice what was going on there? In particular I remember someone at the time pointing out that the accounts showed a stock turnover time, a simple mathematical exercise, of something around six months. Any trained professional would tell you that a company that specializes in selling fresh cakes and coffee, displaying these kind of figures had something seriously wrong! So now the auditors are going to have to justify their prima facie lack of diligence and they say they are going to defend it robustly. Nevertheless this case highlights that rudimentary analysis of the company accounts is still essential to business lenders. We have to hope that what is left of our banking credit expertise has not been sacrificed to unqualified computer driven conclusions.
Although this is by no means a done deal it goes to show that there is a lot of money chasing around the Fintech sector with both Monzo and Starling amongst others being mentioned as potentially or having already tapped the market. At the same time however an element of caution is emerging. Some of these players have been operating for a number of years without the magic word Profit being achieved despite having already attracted millions of customers. What has struck me is the similarity of the business objectives of many of these players. Competition is increasing rather than the other way around and the risks given the underlying uncertainty baked into the economy are certainly not decreasing. The sector is absolutely ripe for consolidation as I mentioned here earlier last year. Watch this space.
Yet another kick in the teeth for workers in the gig economy from two of the Uk’s largest lenders Santander and NatWest. The Telegraph describes the tightening of credit terms as “draconian” and it is hard to disagree with the terminology. To an extent one can understand a foreign owned bank like Santander tweaking its criteria to reduce risk but NatWest is government owned and the policy seems to be highly discriminatory and certainly not helpful to economic recovery post COVID. Apparently a blanket policy for people who are self employed is that to obtain a mortgage a deposit of 40% is mandatory. Santander and NatWest are two of the biggest lenders in the UK mortgage market this kind of seismic change affecting millions of workers will have distorting influence on the market place. It is also a sign of the lack of proper competition in this field. Santander say that existing self employed customers can still obtain a loan with a 15% deposit. I can’t help thinking though that this market is not functioning properly and while these are exceptional circumstances the less fortunate amongst us are once more getting hit the hardest. So much for levelling up.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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