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Osborne Orders Banks To Increase Debt Levels

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http://www.telegraph.co.uk/news/7920579/George-Osborne-warns-banks-to-lend-to-businesses-ahead-of-8.4bn-profits-announcement.html

George Osborne has issued a dramatic ultimatum to Britain's banks as they prepare to reveal profits of £8.4 billion.
.../
In an interview with The Sunday Telegraph, Mr Osborne said the Government "will not tolerate" banks piling the pressure on small and medium-sized businesses and said they had an "economic obligation" to lend.
"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank – either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," the Chancellor said.

It was foolish lending and ensuing debt levels that caused the crash in the first place and the government now want banks to create even more debt--without asking for collateral? And heaven forbid that a sacred house serve as collateral! Osborne has clearly lost the plot--if he ever found it.

If this country cannot succeed without banks splashing money around to dodgy businesses and sheeple we are indeed doomed to repeat history. And to repeat it so soon after the market has just finished teaching the foolish a harsh lesson.

I am afraid we have fools running our economy again.

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We seem to hear the "Viable Business can't get Credit" nonsense every couple of weeks. Merv said the same thing last week I think.

It seems fairly obvious to me that there is a lack of demand for loans from Viable small businesses. What business wants to pile on the debt after the experiences of the last few years? Loan demand will increase naturally as the economy recovers.

Osborne is not an idiot IMO, I think this is mainly political rhetoric to make it look like the Government are supporting small business.

Short of driving dump trucks full of cash to small business and giving it away I can't see how he can force the banks to Lend if no sensible business wants to borrow.

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If this country cannot succeed without banks splashing money around to dodgy businesses and sheeple we are indeed doomed to repeat history.

I think the perceived problem is that banks would rather lend money to people to buy houses than to businesses. Thus businesses have trouble either expanding or just maintaining their present position.

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http://www.telegraph.co.uk/news/7920579/George-Osborne-warns-banks-to-lend-to-businesses-ahead-of-8.4bn-profits-announcement.html

George Osborne has issued a dramatic ultimatum to Britain's banks as they prepare to reveal profits of £8.4 billion.
.../
In an interview with The Sunday Telegraph, Mr Osborne said the Government "will not tolerate" banks piling the pressure on small and medium-sized businesses and said they had an "economic obligation" to lend.
"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank – either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," the Chancellor said.

It was foolish lending and ensuing debt levels that caused the crash in the first place and the government now want banks to create even more debt--without asking for collateral? And heaven forbid that a sacred house serve as collateral! Osborne has clearly lost the plot--if he ever found it.

If this country cannot succeed without banks splashing money around to dodgy businesses and sheeple we are indeed doomed to repeat history. And to repeat it so soon after the market has just finished teaching the foolish a harsh lesson.

I am afraid we have fools running our economy again.

Osborne seems to be talking about lending to businesses, rather than to speculative property buyers. And at least he is not saying that the banks should be treated with a 'light touch', as I believe Gordon Brown did.

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Osborne seems to be talking about lending to businesses, rather than to speculative property buyers. And at least he is not saying that the banks should be treated with a 'light touch', as I believe Gordon Brown did.

The biggest business in the UK is the housing market in the form of:

1. Most bank lending

2. BTL Empires

3. Building Industry and EAs

HPI and related assets were, according to the ONS, 40% of the net worth of UK Plc. HPI is our biggest industry by far dwarfing manufacturing which is third next to the service sector at number 2.

I agree that Osborne is not in the same league as Brown who, on reflection, was singularly the most incompetent person to ever occupy Numbers 11 and 10.

What worries me is the return to "debt is the only solution" to get this country out of the apparent, yet denied, slump.

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We seem to hear the "Viable Business can't get Credit" nonsense every couple of weeks. Merv said the same thing last week I think.

It seems fairly obvious to me that there is a lack of demand for loans from Viable small businesses. What business wants to pile on the debt after the experiences of the last few years? Loan demand will increase naturally as the economy recovers.

Osborne is not an idiot IMO, I think this is mainly political rhetoric to make it look like the Government are supporting small business.

Short of driving dump trucks full of cash to small business and giving it away I can't see how he can force the banks to Lend if no sensible business wants to borrow.

Businesses do want to borrow money, apparently. Some business owners even plough money they've borrowed personally (credit cards, personal finance) into their enterprises (see last paragraph below).

Forum of Private Business website http://www.epolitix.com/latestnews/article-detail/newsarticle/banking-figures-confirm-decline-of-small-business-lending/

30th July 2010

The Forum of Private Business is responding to the latest figures from the British Bankers’ Association (BBA), which show that lending to the UK’s small firms is in decline.

The banking trade association’s figures indicating that new loans to small firms increased by £75 million between May and June 2010, but year-on-year term lending has decreased by £269 million, compared to June 2009 – when the economy was still in recession.

Average monthly loans have declined by almost half since 2008, when banks lent an average of £991 million to small firms. In 2010, the average monthly loan rate is £564 million.

In addition, overall lending has decreased significantly in 2010 despite small businesses increasing deposits into banks by £2.5 billion over the past four months, according to the BBA.

Matthew Goodman, Head of Policy at the Forum of Private Business said: “Our own research shows that both loans and overdrafts have decreased since the start of June – at a time small businesses need more finance in order to expand.

“The need for finance is only going to increase as the economy grows and as small firms, which must be the catalyst for sustained economic recovery, try to meet renewed demand.”

The Forum's latest Economy Watch survey shows that loan facilities for the 358 members on the member panel declined by £66,000 during the past month, while overdrafts decreased by £34,500.

This deterioration comes despite an anticipated requirement for external finance of £1,057,000 per month, recorded in January 2010.

Recently, the Government’s Business Secretary Vince Cable has hit out as ‘misleading' banks' claims that, despite demand for lending being low, approval rates are high. In a green paper entitled ‘Financing a Private Sector Recovery' banks could face penalties for failing to boost lending to small businesses.

The National Association of Commercial Finance Brokers (NACFB), which is in August publishing its annual survey covering SME finance, said there had been a significant reversal in slight improvements to the availability of finance recorded at the start of the year.

Speaking to the Forum, Chief Executive Adam Tyler said: “Evidence from NACFB commercial finance brokers, both anecdotal as well as from the initial results of our 09/10 survey, taken in conjunction with the Bank of England’s own figures, suggest that credit is still extremely difficult for businesses to access.

“There was certainly a loosening of funding and a slight relaxation of criteria at the beginning of the year – but this closed off again just after the general election, and shows little sign of reopening.

He added: “The Treasury report, ‘Financing a Private Sector Recovery’ states that SMEs are vulnerable due to their reliance on bank finance and the problems this has caused. And the Bank of England’s own ‘Trends in Lending’ report states that ‘the flow of net lending to UK businesses remained negative in May and was more so than in April’ - so let’s not believe the hype here, business conditions are still tough and banks are still reluctant to do deals.”

According to research carried out by the Open University Business School earlier this year, supported by the Finance and Leasing Association, 16% of small and medium-sized businesses needed to replace old equipment or invest in new equipment to expand but were unable to do so, with lack of finance a significant factor. The organisation said that too few businesses are exploring alternatives to traditional bank lending.

“Our findings indicate that some businesses are having difficulties obtaining new equipment. Economic recovery depends on Britain’s small businesses being able to grow and invest,” said the FLA’S Head of Asset Finance Julian Rose.

Mr Goodman added: “With the requirements to recapitalise and the simultaneous pressure to keep up the flow of credit, banks do have their backs against the wall. But the way out of this situation isn’t to clamp down on one side to fix the other. Businesses need the access to finance and expertise that the banks can provide, and the banks need commercially-viable business customers to grow their reserves, so both groups are going to need to find innovative ways of managing lending in this new economy.

“For the banks, that means a closer relationship with clients, understanding their business customers and their finance requirements. For businesses, it means presenting better quality financial information and just as importantly an awareness of alternative forms of finance.”

The Treasury report referred to above is here http://www.bis.gov.uk/assets/biscore/corporate/docs/f/10-1081-financing-private-sector-recovery.pdf

This report has a table showing possible sources of finance for various sizes of company, pointing out that for SMEs (turnover under £25 million) banking lending is a possibility, finance from equity markets is limited, and from private placements and bond markets is impossible.

It says (para. 3.7) "Around a third of SMEs do not use formal sources of external finance at all, relying instead on retained earnings or personal finance to fund investment and growth. Those SMEs that do seek external finance are almost entirely reliant on banks, in the form of bank loans, overdrafts or other working capital products such as invoice discounting or factoring. Only around 2 per cent of SMEs use external equity as a source of finance."

There's more detail in the following paragraphs, including the difficulties with equity finance etc. Paragraph 3.10 says "Survey evidence from 209 suggested that 78 per cent6 of SMEs managed to obtain some finance from the first source approached. However, these companies may not have obtained all the finance they required and other survey evidence from 2009 suggests they may have funded themselves through sources such as credit cards or consumer overdrafts."

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We seem to hear the "Viable Business can't get Credit" nonsense every couple of weeks. Merv said the same thing last week I think.

It seems fairly obvious to me that there is a lack of demand for loans from Viable small businesses.

I think this is what they are worried about, M4 (real inflation).

m4to2010.jpg

m4june2010.jpg

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The biggest business in the UK is the housing market in the form of:

1. Most bank lending

2. BTL Empires

3. Building Industry and EAs

HPI and related assets were, according to the ONS, 40% of the net worth of UK Plc. HPI is our biggest industry by far dwarfing manufacturing which is third next to the service sector at number 2.

I agree that Osborne is not in the same league as Brown who, on reflection, was singularly the most incompetent person to ever occupy Numbers 11 and 10.

What worries me is the return to "debt is the only solution" to get this country out of the apparent, yet denied, slump.

Yes I agree but you missed another major category and I thnk the real cause of a lack of leding to small business. Most 'small business loans' were in fact secured against the house value of the small business owner. The reality is that almost all small business lending was nothing of thr sort - it was just another form of property lending.

Now house values look decidedly weak and falling again the banks are not willing to lend against the value of a house owned by a small business owner. Simple as that.

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Snip

Businesses have been way over leveraged for the past few years driven by the Brown belief that there would never be another recession and boom and bust was finished. Why not take on debt when you think your sales will grow in ski slope upward trend forever?

"the flow of net lending to UK businesses remained negative in May and was more so than in April"

Most businesses with any sense have been deleveraging for the past couple of years and are learning to manage there cash flow with "normal" levels of credit. This is perfectly sensible.

Economists and Government seem to have forgotten the purpose of debt, to manage Cash Flow in the extreme short term, to expand through the purchase of capital equipment, investment etc. We are fresh out of the recession and significant demand for (debt) risk will take a few years to return.

There is no shortage of credit to businesses that have strong cash flow and want to expand.

If the last few years have taught us anything it's that the last thing we need is "a loosening of funding and a slight relaxation of criteria".

Lending money to businesses that do not have strong cash flow, a proper business plan, sales projections that factor in the possibility of a recession is insane and will only cause credit crunch mark 2 down the line.

The economic environment is returning to normal. The problem is after the last 10 debt fueled years no one knows what normal is anymore.

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http://www.telegraph.co.uk/news/7920579/George-Osborne-warns-banks-to-lend-to-businesses-ahead-of-8.4bn-profits-announcement.html

George Osborne has issued a dramatic ultimatum to Britain's banks as they prepare to reveal profits of £8.4 billion.
.../
In an interview with The Sunday Telegraph, Mr Osborne said the Government "will not tolerate" banks piling the pressure on small and medium-sized businesses and said they had an "economic obligation" to lend.
"Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank – either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house," the Chancellor said.

It was foolish lending and ensuing debt levels that caused the crash in the first place and the government now want banks to create even more debt--without asking for collateral? And heaven forbid that a sacred house serve as collateral! Osborne has clearly lost the plot--if he ever found it.

If this country cannot succeed without banks splashing money around to dodgy businesses and sheeple we are indeed doomed to repeat history. And to repeat it so soon after the market has just finished teaching the foolish a harsh lesson.

I am afraid we have fools running our economy again.

This is just meme knee jerk.

During the boom out of all total lending only 3% of it was to SME businesses, with the majority going to housing. So business has in no way participated in the debt orgy, indeed it has been cut off from finance/investment If we had got into massive debt financing production and innovation then we would not be in so much shit. Instead we have got into massive debt buying and selling non productive housing.

Edited by Cptkernow

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I think the perceived problem is that banks would rather lend money to people to buy houses than to businesses. Thus businesses have trouble either expanding or just maintaining their present position.

The banks cannot go wrong with bricks and mortar. If prices rise then all is well, if prices fall then the government ride to the rescue. The more money banks sink into housing the more the government have to keep it propped up as the effect of letting it crumble would be too great for the UK. Banks investing in business is very different, if the business goes pop then the bank loses its money and the government won't ride to the rescue.

The nations wealth is slowly been leached across into housing. Savers are loosing money while borrowers are being given it, all indirectly off course. Meanwhile inflation sits in the living room being ignored by all. I can see this country ending up in a situation where nobody has any money with housing making up 75% of the nations wealth.

.

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There is no shortage of credit to businesses that have strong cash flow and want to expand.

I'm not sure that is true. I have an acquaintance who manufactures luxury bags and has just expanded into the USA. His order book has doubled and his bank won't lend him the money to manufacture the stock as a standard loan. He has a choice of cancelling the order (ruining his chances of expanding into the USA as his clients will think he is a time waster and also impacting on his growth) or 'taking advantage' of the banks special scheme in which they will lend you the money and also insure you against the clients not paying - but at a price of 5% of the loan. Since he only needs the loan for the period between manufacture and being reimbursed by the customer - we are talking about a period of 2 months. Which equates to the bank lending him the money he needs at an APR of about 30%. 30% on money they are getting from the govt at 0.5%.

Still. These banking supermen are incredible people who we desperately need - and they need to find a way to finance their bonuses somehow i guess.

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The banks cannot go wrong with bricks and mortar. If prices rise then all is well, if prices fall then the government ride to the rescue. The more money banks sink into housing the more the government have to keep it propped up as the effect of letting it crumble would be too great for the UK. Banks investing in business is very different, if the business goes pop then the bank loses its money and the government won't ride to the rescue.

The nations wealth is slowly been leached across into housing. Savers are loosing money while borrowers are being given it, all indirectly off course. Meanwhile inflation sits in the living room being ignored by all. I can see this country ending up in a situation where nobody has any money with housing making up 75% of the nations wealth.

Yes. The housing market is analagous to the Albanian pyramid scam of the 90s. Once you get a majority of the population hooked on the scam the government can't afford to let it collapse. The scam then becomes the nation's economy.

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I'm not sure that is true. I have an acquaintance who manufactures luxury bags and has just expanded into the USA. His order book has doubled and his bank won't lend him the money to manufacture the stock as a standard loan. He has a choice of cancelling the order (ruining his chances of expanding into the USA as his clients will think he is a time waster and also impacting on his growth) or 'taking advantage' of the banks special scheme in which they will lend you the money and also insure you against the clients not paying - but at a price of 5% of the loan. Since he only needs the loan for the period between manufacture and being reimbursed by the customer - we are talking about a period of 2 months. Which equates to the bank lending him the money he needs at an APR of about 30%. 30% on money they are getting from the govt at 0.5%.

Still. These banking supermen are incredible people who we desperately need - and they need to find a way to finance their bonuses somehow i guess.

Interesting, the bank must be pretty concerned about the client paying to do that. I would probably be pretty worried about the dollar tanking as well, since it has already slipped from $1.42~ to 1.57$ since may 17th. Could be $1.70 in a couple of months at this rate.

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Interesting, the bank must be pretty concerned about the client paying to do that. I would probably be pretty worried about the dollar tanking as well, since it has already slipped from $1.42~ to 1.57$ since may 17th. Could be $1.70 in a couple of months at this rate.

Fingers crossed on that $1.70 ;)

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I'm not sure that is true. I have an acquaintance who manufactures luxury bags and has just expanded into the USA. His order book has doubled and his bank won't lend him the money to manufacture the stock as a standard loan. He has a choice of cancelling the order (ruining his chances of expanding into the USA as his clients will think he is a time waster and also impacting on his growth) or 'taking advantage' of the banks special scheme in which they will lend you the money and also insure you against the clients not paying - but at a price of 5% of the loan. Since he only needs the loan for the period between manufacture and being reimbursed by the customer - we are talking about a period of 2 months. Which equates to the bank lending him the money he needs at an APR of about 30%. 30% on money they are getting from the govt at 0.5%.

Still. These banking supermen are incredible people who we desperately need - and they need to find a way to finance their bonuses somehow i guess.

Why doesnt he circumvent the protection the bank wants by taking out a credit insurance policy. I dont see any bank refusing this as it is the protection of non payment by the end buyer that they are after and the cost would probably be about about 0.5% on turnover as against 5%, as long as he has a written contract for the orders no bank will refuse that with the credit insurance cover in place

or as hotmail states above which i didnt see. The ECGD specifically exists for this although id put money on govt agency being more expensive than the private credit insurers

Edited by Tamara De Lempicka

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Guest spp


"The emperor has no clothes"

Deflation?? :lol:

They didn't listen to you RB and they've done very well for themselves!

Time to wake up people.

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Banks make 8.4bn.. what, like they made in the run up to the credit crunch??

didnt exist anywhere except on the balance sheets...wasnt able to realise it.

Edited by Bloo Loo

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Our banks no longer know how to lend to grow business.

They only know how to sell products, print credit cards, issue personal loans and skim off the top.

The entire industry is no longer fit for purpose.

You only have to watch a NAT WEST advert to see the legacy Goodwin has left behind.

Osborne - meet reality.

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We seem to hear the "Viable Business can't get Credit" nonsense every couple of weeks. Merv said the same thing last week I think.

It seems fairly obvious to me that there is a lack of demand for loans from Viable small businesses. What business wants to pile on the debt after the experiences of the last few years? Loan demand will increase naturally as the economy recovers.

Osborne is not an idiot IMO, I think this is mainly political rhetoric to make it look like the Government are supporting small business.

Short of driving dump trucks full of cash to small business and giving it away I can't see how he can force the banks to Lend if no sensible business wants to borrow.

I know of one small business that wanted to borrow. A friend of mine opened a retail business a few years ago and expanded by opening a second outlet just as the recession was biting. Suppliers have recently tightened credit terms and he hit a cash flow problem. No problem with the profitability of the business - and he produced a very detailed and accurate forecast that showed he needed to borrow 6k for 6 months.

The bank said 'no' and weren't interested in security either - he offered his house but they weren't interested. Somewhat miffed my friend pushed them for an explanation and his branch manager (who seemed to be a go-between between him and some faceless goon making the decisions) came back and said 'we're just not lending at the moment'.

Fortunately my friend managed to raise the money from friends - otherwise he and 5 other people would have been on the dole.

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I know of one small business that wanted to borrow. A friend of mine opened a retail business a few years ago and expanded by opening a second outlet just as the recession was biting. Suppliers have recently tightened credit terms and he hit a cash flow problem. No problem with the profitability of the business - and he produced a very detailed and accurate forecast that showed he needed to borrow 6k for 6 months.

The bank said 'no' and weren't interested in security either - he offered his house but they weren't interested. Somewhat miffed my friend pushed them for an explanation and his branch manager (who seemed to be a go-between between him and some faceless goon making the decisions) came back and said 'we're just not lending at the moment'.

Fortunately my friend managed to raise the money from friends - otherwise he and 5 other people would have been on the dole.

this is where the bank doubted your friend...and quite rightly

you mentioned a highly detailed and ACCURATE FORECAST.

impossible with business unless you have money up front with the orders you are going to make.

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If there is truth to these anecdotals (not implying there isn't), I wouldn't be surprised if some of the papers wouldn't be interested.

I expect it is assumed that banks are turning down loans to high credit risks. If they could print a few of these stories it might put some pressure on the banks to pull their fingers out.

IMHO this is exactly the kind of lending we do want.. otherwise the temptation will be there to ease policy on mortgage loans again.

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If there is truth to these anecdotals (not implying there isn't), I wouldn't be surprised if some of the papers wouldn't be interested.

I expect it is assumed that banks are turning down loans to high credit risks. If they could print a few of these stories it might put some pressure on the banks to pull their fingers out.

IMHO this is exactly the kind of lending we do want.. otherwise the temptation will be there to ease policy on mortgage loans again.

Who's we?

George Osborne has issued a dramatic ultimatum to Britain's banks as they prepare to reveal profits of £8.4 billion

Thought you were more of a free marketeer? Are you suggesting the banks have in some way got an obligation to the nation rather than their board's bonuses? (obviously we can discount they care about their shareholders since they've largely wiped them out).

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Who's we?

The UK public.

Thought you were more of a free marketeer? Are you suggesting the banks have in some way got an obligation to the nation rather than their board's bonuses? (obviously we can discount they care about their shareholders since they've largely wiped them out).

I am, but we don't live in a free market with predictable monetary policy.

My concern is that the government/BoE will target positive M4 growth at all cost.

They are trying to do it by encouraging lending to business instead of the mortgage market for now.. my concern is that if the banks are playing silly buggers the government will back down and turn to HPI once again to solve our financial ills.

IMHO that would be a bad outcome.

As for banks / profits / shareholders.

Shareholders own the banks. If the banks make a bumper profit that money goes to their shareholders. I don't know many companies who don't care about their owners. I don't know many owners that mind their company making £8.4bn.

If the banks genuinely can't find viable business to invest in that's one thing. If banks are refusing to lend in order to distort/ease monetary policy then I very much object.

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  • 238 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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