An interesting question? Matthew Lynn looks at the inflationary impact on small businesses borrowers, highly leveraged private equity players as well as the mortgage market. As he rightly points out all of these sectors will be affected and there risk profiles will rise. Of course the UK and other markets have sophisticated stress testing mechanisms in place but Lynn doubts whether double digit inflation levels were brought in to the equation as nobody thought that inflation could rise by that much. He also does not have a great deal of faith in the present governor of the Bank of England having the foresight to deal with what is on the way. I don’t blame him. However we are probably not in the same mess as other European economies whose banking systems have been kept alive for years by the ECB. What Mrs. Lagarde will do now is anyone’s guess but with the German economy in the mire international creditors might start to sniff that all is not well.
This is a warning to a number of companies including fallen industry idol Klarna over misleading language in on line advertising. In addition it took aim at on line “influencers” over posts that might lead some vulnerable people to take on more than they could handle without pointing out the ongoing risks in taking on too much debt. We are not that great all over place in educating our “must have it now” millennials. We don’t do a great job with our bankers either. Nevertheless influencers are frequently the replacement for the Flash Harries of the 1960s and 70s. There are a lot of them out there: most of them in Mayfair chasing what is left of the Private Equity business. Consider this a warning. Things could get very nasty indeed.
Zombies is the term associated with companies that have essentially just about survived the past ten years or so on the back of ultra low interest rates. The recent rises in rates in the UK and elsewhere in Europe where the situation is possibly even worse have seen an increase in restructuring activity over the past couple of quarters. The trouble is that there are a lot of them, unable to pay down their loans or to make productive investments. They are the living dead. Not only that but they are a drag on the economies of all major advanced economies. Continuing with companies, and the list is growing longer, that clearly have a limited shelf life and no future prospects distorts the proper allocation of resources and diminishes productivity. The trick is for rate setters is to find a Goldilocks solution. Raise rates too quickly and you tip the baby out with the bathwater. Hopefully the lenders are keeping the authorities informed about the true state of the credit markets but I wouldn’t hold your breath. My faith in our and the Eurozone’s clueless bureaucrats has already waned away. Hope is not a strategy.
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. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscripti on to the global Fintech blog – caffeine for the mind that could be worth $ millions.