Final Report of the Royal Commission into Misconduct in Banking - Big Banks 4, SMEs 0

Final Report of the Royal Commission into Misconduct in Banking - Big Banks 4, SMEs 0

So the final report of the Royal Commission into Misconduct in Banking has been published.

Australian SMEs / Small to Medium Sized Businesses didn't get much.

Big 4 Bank share prices popped over 4% this morning. They will save a fortune on broker commissions. Remediation penalties were already priced in. Executive option schemes are worth much more today than yesterday.

Jamie Oliver’s story: the perils of going for growth without managing cashflow

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https://www.ft.com/jamieoliver

Mark Edmonds AUGUST 30, 2018

It was a balmy evening last September. Jamie Trevor Oliver MBE, multimillionaire chef, philanthropist and scourge of soft drink barons, was filming an episode of his Channel 4 series Friday Night Feast with A-list actor Liv Tyler. In the decidedly un-Hollywoodish setting of Southend Pier in Essex, Oliver’s star guest began to show him how she cooks her signature dish of prawn dumplings. And then his mobile rang.

It turned out to be an uncomfortable call and for once the chef found himself bereft of the boyish bonhomie that has sustained him since he launched his television career as The Naked Chef in 1999. Oliver ordered his crew to stop filming. The message from the person at the other end of the line was brutal and to the point.

Oliver’s restaurant chain, Jamie’s Italian, which his company had aggressively expanded from a single outlet in Oxford in 2008 to 43 restaurants by the end of 2016, was in serious trouble and teetering on the brink of bankruptcy. “We had simply run out of cash,” he recalls, as we sit on a vintage sofa at Oliver headquarters in north London nine months later.

“And we hadn’t expected it. That is just not normal, in any business. You have quarterly meetings. You do board meetings. People supposed to manage that stuff should manage that stuff.” A surprisingly sharp tone in his voice suggests that someone let him down and he was none too pleased.

Oliver was left with no choice but to instruct his bankers to inject £7.5m from his own savings into the restaurants. A further £5.2m of his own money would follow over the next few months. Last year, Oliver was said to be worth £150m. Even so, £12.7m is not the kind of money that slips down the back of a sofa, vintage or otherwise.

“I had two hours to put money in and save it or the whole thing would go to shit that day or the next day,” he continues. “It was as bad as that and as dramatic as that.” For Oliver, now 43, the past year has been exceptionally painful.

He has been forced to close 12 restaurants and make hundreds of people redundant: his company has been in turmoil and he has endured savage press criticism, not least over the controversial decision to stand by his brother-in-law Paul Hunt, who he appointed as chief executive of the Jamie Oliver Group in 2014.

Oliver doesn’t do many in-depth interviews, especially when the subject matter might be perceived as “bad news” — yet he is disarmingly honest in our conversation about his group’s failings. This is the first time he has talked at length about the problems in the business. He has estimated in the past that he “f**ked up” 40 per cent of his business ventures over the course of his career, but what went so catastrophically wrong with the restaurants? And what does it mean for Oliver’s business in the future? “I honestly don’t know [what happened],” he admits. “We’re still trying to work it out, but I think that the senior management we had in place were trying to manage what they would call the perfect storm — rents, rates, the high street declining, food costs, Brexit, increase in the minimum wage. There was a lot going on.”

How Banks are running our economy

How Banks are running our economy

This week's findings at the Financial Services Royal Commission reminds me of an insightful analysis by Alan Kohler in The Australian two years ago on what is holding business back and the negative effects on our economy. Sadly, our policy-makers seem to be disconnected from the reality of how to manage our economy.

“Banks are basically not lending to those who don’t own a house or are already fully committed on their mortgages, and those who are building houses for investors.

So they are going elsewhere and paying 10-15 per cent more in interest than the banks would charge, except they’re not.

It means the divide between the haves and have-nots (a house, that is) has never been this great.”

What is a GSA and why is it important?

What is a GSA and why is it important?

You may have been asked to enter into a General Security Agreement (‘GSA’) to provide security over your assets to a third party, before that party will advance you money, goods or services. What does this mean?

Every week, we come across companies that have given GSAs to banks or even car finance companies that are unlimited or unnecessary, resulting in the bank having too much security.

Usually, banks require real estate security as full collateral for a company loan/overdraft and often this involves the Directors' securing the loan on their personal property (ie registering a first charge over the property). A GSA is not required in this situation but some banks ask for one anyway and it is provided without discussion. 

What can be done to fix our dysfunctional Business Banking System?

What can be done to fix our dysfunctional Business Banking System?

In the UK, P2P lending to business has developed rapidly with support from the British Business Bank, set up in 2013 by the UK Government. It has a mandate to facilitate up to $20bn of SME finance by 2019. Whilst bank lending to London’s SMEs plummeted 40% in 2015, the UK capital’s companies raised an estimated £350m through peer-to-peer lending in the same year, according to the British Bankers Association.

Credit guarantee schemes work. They overcome the clear risk aversion that affects our banking system when it comes to business loans by limiting the apparent downside. And taxpayers' money is put to work for a good return.

However, the Productivity Commission finalised a report on Business Set-up, Transfer and Closure in December 2015 which carries a serious amount of weight in Canberra. It concluded that there was no problem in accessing business finance in Australia despite submissions to the contrary by many reputable bodies.

“Business” is not one thing - what's holding back job creation and wage rises?

“Business” is not one thing - what's holding back job creation and wage rises?

At the recent Altfi Australasia Summit in Sydney, there was an impressive and quite rare gathering of over 400 finance people, investors, entrepreneurs, policy-makers and commentators from around Australia, the US and Europe.

One of the hot-button issues debated was the recent finding from the Reserve Bank of Australia on the Availability of Business Finance that:

Despite finance generally being available, growth in business borrowing has been relatively moderate, suggesting demand has been soft.

The debate about "Business" in Australia is polarised between on the hand seeming to include all business but really meaning "Big Business" and then when talking about SMEs meaning sole traders and very young start-ups.

“Business” is not one thing.

What can we learn from the UK Parliamentary Inquiry into SME Lending?

What can we learn from the UK Parliamentary Inquiry into SME Lending?

In the UK, the Treasury Committee is currently holding an inquiry into SME Lending. The non-bank SME finance market in the UK is much more developed than Australia's. Government has been much more pro-active in encouraging the development of an SME eco-system.

Despite this, there is much more to do and the problems are very similar to ours. Australian policy-makers could fast-track much needed improvements in our SME finance market by studying closely the findings from this inquiry.

Small Business Lending by Banks remains in the Doldrums, holding back wages and jobs growth

Small Business Lending by Banks remains in the Doldrums, holding back wages and jobs growth

The latest figures on Business Lending from the Reserve Bank of Australiashow that only 10% of new loans in the year to September 2017 were made to SMEs, a growth rate of 4% pa.

Larger loans, mainly to corporates (although not clearly segmented by the RBA sadly), increased by 16% over the same period and accounted for 90% of new loans.