Banks put under the cosh
For ross McEwan it has been out of the frying pan into the fire. The lugubrious New Zealander, having battled to restore the dividend at royal Bank of Scotland, fled London for Sydney, only to find that National Australia Bank (NAB) needed attention too.
He has taken similar pre-emptive action to that adopted by the Aussie banks in the financial crisis, by raising £1.8bn of new capital through a rapid share placing, and slashing the dividend.
Banks across the globe find themselves in a pincer movement. They are being asked by governments to get guaranteed loans to firms as quickly as possible.
But they know that as a consequence, there will be an upsurge in bad loans and provisions, which could erode capital safety nets if the assistance provided goes too far.
That is among the reasons why we must support the new 100pc guarantees for loans for smaller enterprises, those seeking under £50,000, and hope that when disruption has faded, debts will be forgiven.
The pre-occupation of UK bank enforcers at present, and rightly so, is to get money out of the doors speedily. rBS-Natwest gets the gold star but Lloyds, in spite of its size, is a laggard. It has put in place unnecessary burdens, including an intimidating pre-approval questionnaire. That is not in the spirit of the Covid-19 era.
To make matters easier for the lenders, the Bank of England has already released counter-cyclical buffers to prepare for current loan demand. Governor Andrew Bailey is keeping credit easy with an extra £200bn of bond buying. The Bank has written to lenders suggesting they don’t load up their accounts with provisions at present, which could limit the ability to augment reserves from retained profits.
In an emergency such steps may be acceptable. But in the first quarter, the biggest six US banks ramped up loan loss reserves by 350pc to £20.3bn. Plotting a path between making loans, but not damaging capital and future lending capacity, is a huge dilemma. UK bank dividends have already been cancelled or deferred, causing a big ruckus for HSBC in its core Hong Kong market. our lenders may eventually have to follow the Aussie blueprint by raising new equity. If so, one would advise Barclays to give Qatar a very wide berth.
Sky jinks
PITy the upcoming Easyjet general meeting on May 22 will be held remotely.
If it weren’t so serious, the effort by founder and biggest shareholder Stelios Haji-Ioannou to remove four ‘scoundrels’ – normally known as senior directors – from office would make for sizzling entertainment.
In insinuating that chief executive Johan Lundgren and colleagues already have a ‘second job’ as marketing directors for Airbus, Stelios has a point. Praise for Airbus and its contribution to Easyjet’s past success reads a like a press release in favour of the struggling European aircraft maker.
Thank goodness, with the help of the notmuch-lamented Neil Woodford and Germany’s Angela Merkel, that a weakened Airbus’ effort to merge with Britain’s BAE in 2012 was defeated. What Stelios cannot dispute is that it is not just Easyjet suffering, but almost every other airline. Fellow knight of the skies richard Branson is pulling out the stops in seeking to keep Virgin Atlantic flying. Investment bankers Houlihan Lokey are exploring options including diluting or eliminating Branson’s 51pc as they search for £500m. Virgin maintains a government loan is still possible.
Elsewhere, Norwegian Air, with more than £6bn of debt on its books, is seeking to persuade investors to convert £2.9bn of debt into equity, having received a £2.4bn loan guarantee from the oslo government.
All of this is a bit different from the US, where Treasury Secretary Steve Mnuchin decided air travel is of strategic importance and wrote the cheques.
Medal winners
oNE of the curiosities of the Bank of England loan scheme for bigger corporates is the lack of transparency.
The Bank is happy to propagate the big numbers, running at £500m or more a day, but recipients are secret unless they choose to announce. Latest borrower to come out is InterContinental Hotels, which received a £600m bail- out credit after revealing a 25pc plunge in revenues in the first quarter. IHG shares, which have halved in value in recent months, jumped 7.1pc. Money from the old Lady is a badge of honour.