It seems that trouble automatically finds the top dogs at Switzerland’s second largest bank. In the Portuguese bankers case it was COVID restrictions that forced his resignation as Chairman after just nine months. It was his mission to sort out the obvious problems which had arisen under his predecessor. Unfortunately new brooms have to be squeaky clean and very strong when trying to sort out entrenched problems. I have some experience of this as during the late eighties I witnessed first hand the terrible journey that Bank of America made from being a large and sophisticated global bank to becoming a subsidiary of regional minnow North Carolina National Bank . Once the rot has set in it is hard to control and the ultra flat organisational structures of banks together with divisional rivalries and blame games frequently turn cohesive organisations into a sack of hissing vipers. I am not saying that this is what has happened here but it is pretty obvious that it is not a good place to be at the moment.
Lord Agnew resigned from his position as a minister to the treasury and the cabinet office yesterday. For once the peer made clear that the resignation was not something to do with the general malaise in the current government and the chaotic performance of Boris Johnson although I cannot help but feel that the two things are somehow connected. The problem appeared to be the shambolic way in which the various COVID support facilities, bounce back loans etc. were handled by the Treasury and the inevitable losses which have so far reached approximately £ 5 billion and could indeed run much higher. When these facilities were introduced I pointed out that the speed of their introduction would inevitably lead to huge bad debts and that has now proven to be the case. There is a lesson here for all serious lenders. Make sure that you are happy with your levels of diligence when considering the risks. If you don’t get this right a large amount will just not come back. I hope that the government doesn’t try to collect the bad debt themselves. That would almost certainly be an even bigger debacle.
With the bond market signalling problems ahead I think we are going to all be afflicted by the famously appropriate Chinese curse “may you live in interesting times”. This particular piece refers to the problems experienced by cruise line operators and at the same time demonstrates the interdependency of global markets through technical things appearing in loan agreements like Cross Default clauses. By this mechanism a problem in one industry quickly filters into another. In this case it is cruise operators and shipbuilders but the problem goes far deeper. We are going to see very large defaults all over the world in the next few years as inflation brings whole economies to their knees. Lenders take note. COVID is hitting cost levels in all businesses and government overreactions to it are making matters worse. It’s not just Putin and Ukraine you need to worry about. Time to put on your tine helmet.
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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