Don’t bank on a laugh from your financial advisers
Soon after the recent television documentary on the financial collapse ten years ago of the Royal Bank of Scotland I met a former bank manager. Long retired from a different bank his work ethic had nothing in common with Fred Goodwin’s egomaniacal empire building.
But what he was still fuming about, to the point where I feared a seizure, wasn’t Goodwin’s failed drive for world domination and the misery he caused for so many, but Sir George Mathewson smiling and joking when interviewed.
My friend said, and goodness knows when he last brandished a fist: “Mathewson seemed to think it was all a joke. He seemed to laugh it off with that crass ‘Wham, bam, thank you MAM’ [the financial services firm which backed the Royal Bank’s takeover of Natwest] comment. What was so funny?”
Sir George, the man who brought Goodwin from a short spell at the Clydesdale, where he acquired his Fred the Shred nickname, to be his successor as the Royal Bank, seemed to take a “Well, that’s life” approach.
In fact his TV performance reminded me of economist Brian Pack’s story about the farmer who smiled while his accountant ran through a litany of how much the farm had lost that year.
“Well, it could be worse,” said the farmer when the tirade ended.
“How,” said the accountant, “could it possibly be worse?”
“It could be my money.” A good joke and most of us could think of farmers who have taken that approach. But most of us
also took, or had to take, a different approach to our bank. Bankers have always been essential to farming, even if not as essential as I used to think. It surprised me as a young journalist when I found that not every farmer had an overdraft or that having one was not necessarily a bad thing. Used wisely an overdraft could be a springboard for a business, not a noose.
The ratio used to be, and perhaps still is, that about one third of farmers have a permanent overdraft, about one third have a seasonal one and – the news that shook me at the time – about one third never have an overdraft.
For those that do, the size has increased over the years. The mid-summer figures this year show that lending to Scotland’s farmers was £2.34 billion. Adjusted for inflation that was down slightly, although even by Royal Bank Monopoly standards it is a lot of money. But because of the value of land, that national farm overdraft is only about 10 per cent of assets, a low debt to value ratio compared with most businesses, even allowing for another £1.2bn of borrowing related to hire purchase, leasing and “other sources.”
How an overdraft is arranged or decided has also changed over the years. Some of us can remember when we dealt directly with a local manager
who knew his area and his clients. some might have seemed too cautious, but looking at what happened in 2008 who could say they were wrong?
Establishing good relations with the local manager was helpful. Getting him – it was usually a him – out to the farm to see where the bank’s money was being used was a big step forward from being called in to explain yourself.
Then in the 1990s, about the time Goodwin began his meteoric rise, the local managers who knew their clients were pensioned off and we had to deal with head office teenagers. The horror stories of mis-selling, badly advised investments, loans that became millstones, are well known and haunt some farmers yet.
But some farmers benefit greatly from bank loans and overdrafts and use them to build and expand successful businesses. And in spite of the Royal Bank shambles – and others – the banking show goes on. Any glance at the financial pages will show that bankers still make big bonuses in the you pat my back I’ll pat yours world of corporate finance and that an individual farm overdraft is a minuscule item on the balance sheet of any bank.
Maybe Sir George was right. It is a good joke. Try that line with your next cash flow, budget and application for an overdraft extension.