Bankers only lend a man an umbrella when it is a fine day

Despite previous rhetoric it is now apparent that some banks are still trying to increase their reserves, rather than lend more money out.

New figures from the banks themselves confirm that lending to businesses is continuing to fall. The British Bankers Association (BBA), which represents all the main banks, said lending to four million small and medium-sized businesses fell by £382m in the last quarter of 2012.

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

 

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation.

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely.

Ironically it is the activities of Banks themselves who precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

 

Where's the money gone?

Particularly in these difficult times, it is staggering that so many companies be they large or small fail to keep a control of their inventories.

Whilst Management consistently push for increased sales performance, the question of housekeeping is often put on the back burner or it would appear totally neglected.

This laissez faire attitude is in evidence across the board.

The latest report from the Ministry of Defence on its inventory controls makes for sobering reading. With over 710 million items in its stores (ranging from missiles to uniforms) the inventory is worth £40.3 billion.

The Public Accounts Committee has now identified £6.6 billion was over ordered or unused.  The MOD is now faced with disposing of some £3.4 billion of supplies on its disposal website (a military version of eBay).

The scale of this ineptitude beggars belief.

As far back as 2008-9, auditors had raised concerns about inventory accounts and warehouse systems and checks had been improved, but they had found that the inventory recorded did not match the stock count at 29% of locations.

This begs the question: how comfortable are you with your Stock and Debtors controls?

It might be timely to conduct a pre-emptive review of your operating systems now rather than wait for the post mortem results.

 

High Noon for the High Street

The acceleration in store closures this year followed a grim 2012, when a net 1,779 closed. That represents a 10-fold increase from the 174 in 2011 and reflected casualties including Game Group, JJB Sports, Blacks Leisure and Clinton Cards. Although many of the companies were salvaged in one form or another, hundreds of stores closed.

With the rise of online shopping the chains did not need as many stores as they did in the past, a trend that looks set to accelerate this year.

People have got less money in their pockets, employment is tighter and also we've seen a massive growth in the supermarkets in terms of non-food retail.

The dominant factor has been the growth of inline shopping. The internet now accounts for 12% of retail sales - and is forecasted to be at least 30% by 2020.

Those retailers who fail to exploit all areas of multi channel marketing whilst finding themselves saddled with the burgeoning costs of maintaining retail outlets will continue to suffer and produce more casualties in the sector in the coming months.

The pain in Spain it’s the Banks who are to blame

Spain's troubled Bankia - formed of the merger of seven floundering savings banks - has reported a record loss.

The bank, which received aid of 18bn Euros, made a loss of 19.2bn Euros (£17bn, $25.2bn) for 2012 and put aside provisions of 26.8bn Euros.

Last year, Bankia and its parent firm, BFA, asked for EU funds to help rebuild its capital.

Spain's bank rescue fund said Bankia itself had a negative value, although its parent had some worth.

Bankia was born out of the merger of seven savings banks that were highly exposed to Spain's property sector, which crashed five years ago.

The Bankia-BFA group as a whole made losses after tax of 21.2bn Euros in 2012.

Bankia's seven component banks were severely damaged by their loans to property developers and home buyers during the country's property bubble that ended in the late 2000s.

The above train wreck graphically underscores the need for strict controls of all financial reporting and a robust monitoring of valuations of assets.

As evidenced by this fall-out in Spain unrealistic valuations either through deviousness or sheer incompetence will ultimately bring disastrous consequences.

 

The impact of the French Revolution? - “too early to say.”

Thus did Zhou Enlai – in responding to questions in the early 1970s about the popular revolt in France almost two centuries earlier – buttress China’s reputation as a far-thinking, patient civilization.

The former premier’s answer has become a frequently deployed cliché, used as evidence of the sage Chinese ability to think long-term – in contrast to impatient westerners.

Fast forward to today and the ability of the Chinese to play the long-game has never been in more evidence.

In a single decade from 2001 up to 2010 Chinese trade with the rest of the world increased from £325 billion to £1.9 trillion.

Since 2005 China has invested £320 billion across the globe with 75% of this in developing countries.

There is an insatiable demand for raw materials to fuel the economic growth in China and commodities such as Oil, Minerals, Precious Metals and Fuel are the prizes for these investments.

The ongoing crisis in Western economies has provided ample opportunity for China to assert its economic strength and China has now usurped the US as the largest foreign investor in Germany.

We are already seeing Chinese companies investing in such diverse areas as the French Wine industry or making acquisitions in the US/European Food Industry and this will undoubtedly continue as China accelerates its move into Western markets.  

A true and fair view of the state of the company’s affairs?

 

During the recent failures in the global financial system one group of participants have remained largely unscathed for their part in the train wreck, the Auditors.

Now Britain's four biggest accountancy firms have been heavily criticised by the Competition Commission.

The regulator has accused PWC, Ernst & Young, Deloitte and KPMG of being too dominant and not always meeting a shareholder's needs.

The four accountancy firms act as auditors for 90% of the UK's stock-market listed big companies.

They have also been criticised in the past for not doing enough to warn of the financial crisis.

Critics say accountants failed to scrutinise the banks' balance sheets properly, missing the warning signals that led to government bailouts.

The concern is that the relationship between auditors and company management becomes too comfortable with a "tendency for auditors to focus on satisfying management rather than shareholders' needs".

Essentially there are many instances of conflict of interest such as taking on consultancy work for Clients and becoming too cosy with management teams.

It is all too easy for companies to bully the young staffers sent in to do the grunt work .For example what chance has a newly appointed auditor walking around a factory warehouse to adequate value stock?

In reality they have to rely on the company for “valuations” and this can result in a totally inaccurate picture being presented.

The validity of a company’s accounts reflects the integrity of the company which is being audited. As was graphically demonstrated with the banking crisis in Spain an unrealistic valuation of the property portfolio either through deviousness or sheer incompetence will ultimately have disastrous consequences.

Rarely will a company or individual be able to hide losses indefinitely as witnessed by the likes of Maxwell, Madoff, and Stanford.

 

 

Negotiating hairpin bends

A combination of recent market volatility, the continuing spectre of failure in
the Eurozone coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual
ordering patterns, delays in payments etc. Very few businesses fail overnight
and there are usually enough warning signals which should enable a supplier t
reduce its risk.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised
companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.