On 6th April the UK government is consolidating its three principal Covid support loan schemes (CBLIS, CLBLIS and BBLS) with the (RLS)Recovery Loan Scheme. At this time it is worth remembering that we are only now one year into the COVID crisis and so to an extent the government is working with only limited empirical data at its disposal. I am sceptical that anyone really knows enough about what is going on within the darker corners of the UK economy to make informed decisions. Firstly there is the inevitable raft of bad debt that is already baked in to the outstanding loans a consequence of trying to do things in too much of a hurry. Secondly when you offer a free lunch to someone who is hungry they are inevitable going to eat it. The due diligence on a lot of these loans as to the track record of these borrowers was just not done, or if it was, was not done well. Again this was an inevitability given how quickly things were moving. I know it is easy for me to criticise from the sidelines when I don’t have to deal with a terrible pitch and high winds blowing but I do think for the government to provide 100% guarantees was an accident waiting to happen. The RLS will reduce the guarantee to 80% which will clearly sort some wheat from chaff. However even a 5% risk to be taken by punters in some of the original schemes would have put off some of the real chancers. Estimates of Bad debts under these schemes range from 20-50%. Some real money is going to go south here.
The rush for Bankers exiting Britain post Brexit has not materialised and this has been felt by Frankfurt’s elite private schools after lots of enquiries but a dearth of bookings. At the same time there has been a lot of press about Amsterdam becoming the principal beneficiary from business which has moved from London. Alex, the cartoon in the Telegraph got it right. Bankers didn’t want to go to Frankfurt because they didn’t like it. I didn’t like it either. But working for a German Bank was never a great experience and for one very good reason. They are not very good at it wwith the exception of dealing with the engine of German industry the Mittelstand. Even their flagship International leader, Deutsche, has had to remodel itself and not necessarily for the better. Germany is really quite good at lots of things but they are mostly good at pure process and following instructions to the letter. Anything which requires seat of the pants actions and reactions is hard for them to cope with. As far as Amsterdam is concerned I worked there for a time. Much more laid back. Mathhew Lynn’s suggestion in today’s Telegraph Closer co-operation between Amsterdam and London is worth looking at.
On the face of it this is good news. Insolvencies in February were 686 down from 1348 in the same period last year. However this number looks and is largely artificial thanks to government restrictions on what actions creditors can take, backlogs in the courts and the forbearance of creditors recognising that playing things tough is not an option. No wonder digital lenders credit algorithms are being blindsided. This has never been seen before on this scale. I am struck by how many of our new Fintech banks are led by technicians. I fear they will need a crash course on the real world before very long.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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