Storm Clouds on the horizon

HAMISH_MCTAVISH

abaxas wrote: »

You cant hold a standoff when one party holds all the guns, while the other only has limp celery.

Ha! You think lenders hold the power? :rotfl:

Awww, bless.....

Rates are ultimately set by borrowers, not lenders. If there is insufficient demand for money at 5%, banks must lend it at 4% or 3%.... Or not lend it at all and make precisely zero percent.

Banks must lend money to survive. No lending = no income = bank going bust.

Borrowers don't need to borrow.

Banks most certainly do need to lend.

Wookster

HAMISH_MCTAVISH wrote: »

I disagree.

There are a lot of people and businesses out there quite happy to borrow money. Just not on the terms the banks are currently willing to lend it at.

The "Mexican standoff" is alive and well in the lending markets just as much as the housing market.

I suspect Generali is referring to consumers rather than corporates. Consumers already up to their eyeballs in debt, but corporations are quite starved of cash.

It would be good to see private equity stepping in to fill this gap. Surely there is money to be made by doing what the banks won't do.

Generali

HAMISH_MCTAVISH wrote: »

I disagree.

There are a lot of people and businesses out there quite happy to borrow money. Just not on the terms the banks are currently willing to lend it at.

The "Mexican standoff" is alive and well in the lending markets just as much as the housing market.

Fair point. AIUI the BoE disagrees with you but that doesn't make you wrong of course.

My belief is that with everything as it is, people are risk averse and are looking to pay down debt on average. That doesn't mean everyone feels that way but I think that's the trend and, to quote a City aphorism, the trend is your friend.

abaxas

HAMISH_MCTAVISH wrote: »

Ha! You think lenders hold the power?

Awww, bless.....

Rates are ultimately set by borrowers, not lenders. If there is insufficient demand for money at 5%, banks must lend it at 4% or 3%.... Or not lend it at all and make precisely zero percent.

Banks must lend money to survive. No lending = no income = bank going bust.

Borrowers don't need to borrow.

Banks most certainly do need to lend.

Rates are set by the market. The market is set by the lenders.

Banks by definition do not 'need' to lend, lending is function of their current business model, not a requirement.

Generali

Wookster wrote: »

I suspect Generali is referring to consumers rather than corporates. Consumers already up to their eyeballs in debt, but corporations are quite starved of cash.

It would be good to see private equity stepping in to fill this gap. Surely there is money to be made by doing what the banks won't do.

Corporations aren't starved of cash, far from it.

If you get a copy of Tuesday's FT then there is a column called 'dividend cover'. I can't remember figures as high as this since the late 80s.

Dividend cover is a measure of how many years dividend is covered by the cash in the bank the company has. 2 years is the minimum level for very, very safe IMO. Corporations have tons of cash.

The problem really is that they won't invest.

ILW

abaxas wrote: »

Rates are set by the market. The market is set by the lenders.

Banks by definition do not 'need' to lend, lending is function of their current business model, not a requirement.

I would suggest that saying banks do not "need" to lend is a bit like saying that a shop does not "need" to sell anything. Lending is the main source of a retail banks profits.

Wookster

Generali wrote: »

Corporations aren't starved of cash, far from it.

If you get a copy of Tuesday's FT then there is a column called 'dividend cover'. I can't remember figures as high as this since the late 80s.

Dividend cover is a measure of how many years dividend is covered by the cash in the bank the company has. 2 years is the minimum level for very, very safe IMO. Corporations have tons of cash.

The problem really is that they won't invest.

I should rephrase. Large, established corporations are pretty well placed. It is small unestablished businesses with little by way of track record that are really struggling at the moment.

Generali

abaxas wrote: »

Rates are set by the market. The market is set by the lenders.

Banks by definition do not 'need' to lend, lending is function of their current business model, not a requirement.

Broadly speaking, if retail banks don't lend money then the other opportunity to make money is to sell beer under the All Bar One brand.

Generali

Wookster wrote: »

I should rephrase. Large, established corporations are pretty well placed. It is small unestablished businesses with little by way of track record that are really struggling at the moment.

I agree 100% with that.

Unestablished businesses are perceived one of the highest risks for a bank. Perhaps 2/3rds of companies will be bust before the decade is out. That's a very subjective measurement though and mine is probably a best case.

Wookster

Generali wrote: »

I agree 100% with that.

Unestablished businesses are perceived one of the highest risks for a bank. Perhaps 2/3rds of companies will be bust before the decade is out. That's a very subjective measurement though and mine is probably a best case.

True, much risk lies with the competence of the management team. Some of the most exciting innovation comes from small businesses and personal houses would do well to remember this.