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A hub of news on current industry and technical issues, advice and career development support.
Bank loans for larger companies? Life on Mars says John Grout What are banks for? Recent headlines say the government is concerned to keep credit flowing to consumers and to small businesses. There has been little mention of larger firms.We are told that, post this credit crunch, the world of finance will have changed a lot: the practice of the years around the turn of the millennium is history. What will financing look like for larger companies? Perhaps, back to the slightly more distant past. I started in this game in the early 1970s.
In these challenging times our members and those taking the ACT’s qualifications are equipped to play a vital part in ensuring that their organisations remain financially resilient. Volatility across all markets remains exceptional and a focus on management of financial – and enterprise – risk can never have been more important. Funding and liquidity management shows no sign of becoming any less critical, with availability and maintenance of credit at the heart of what many of our members are focusing on.
What should you be thinking about and what do others think of your credit? Credit risk is one thing that treasurers must be concentrating on at the moment. The first part of this is to investigate what credit risks you are taking.Is the spare cash of your firm safely invested and available when you need it? Are any derivatives that you hold at risk from failure of your counterparty? Are your customers a good credit for the amount you are extending to them. What are the implications of change in any area? The second part is to understand what others think of your credit.
It occurs to me, writes Peter Matza, that many treasurers will have taken on a role during the economic crisis of the past 18 months for which they may be ‘the last man standing’.
We continue to be as active as possible in supporting our members with comment on the evolving issues within the financial markets. A number of us have been extensively quoted in the media (the Financial Times in particular) and have broadcast on Bloomberg, ITN News and the Today programme on BBC Radio 4.In line with our stated policy we will normally comment first from the perspective of non-financial sector corporates.
Given the extent of uncertainty and change in the financial market we are focused on providing timely and helpful advice to our members. The most recent example of this has been over the past weekend, when we worked to respond to press reports that banks are considering invoking market disruption clauses in loan agreements. We had excellent support from Slaughter and May.
This has been the message from the ACT for the last few years – though what we actually said was “fill your boots” as we did not expect the then favourable market conditions to persist.The message bears repeating – even in the current climate where bond markets are often closed and many banks don’t want to hear about anything longer than two days. If funding windows open, they are not a signal to relax but to fund while you can, even without an immediate need for the funds.
For the money markets liquidity is the problem says Martin O’Donovan.The central banks have been working hard to supply liquidity into the inter-bank market and have just about been keeping the overnight rates near the official rates (Base Rate in the case of the UK), but the 3 month rates have stubbornly refused to follow suit and right now have ballooned out for sterling to 6.4% when base rate is just 5%. Clearly the banks are keeping their cash very short term and 3 month liquidity has disappeared.
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