The Breedon Taskforce into UK non-bank funding released their findings on Friday. Whilst it’s recommendations are fine as far as they go, there was little likely to alleviate immediate funding needs for many companies. My latest technical paper, published on Asymptotix website (with thanks) addresses the mechanics of how many companies ( mainly mid-sized+ ) globally (particularly in peripheral Eurozone countries) who are finding themselves closed out of the banking market are considering and adopting more robust and transparent alternatives that are less risky and reduce costs for them and bank and non-bank funders.
Importantly, these solutions put greater control of the funding process under the non-financial company’s control. Rather than allowing their pledged/encumbered or sold-into-a bankruptcy-remote-SPV assets and credit risks to sit redundantly on the balance sheet eating capital or played with by bank and non-bank funders who may cut, bundle, wrap, rate and sell them as esoteric securities, non-financial companies want and deserve more. This is because there remains a fertile fallacy ignored (invidious) or simply not understood (suggesting the effects of the Lobby) by those charged with fixing the Financial System. The Financial Economy is a subset of the Real Economy. Over the last 25 years politicians and regulators have allowed the dog to savage it’s owner.
There has been plenty of financial innovation within and across financial markets over the last forty years. However, little of this has created better products and services for non-financial corporates. Boards now need products and services that improve Risk Management and corporate governance. Financial sophistry hasn’t paid off (at least for those who pay for it). The Goldman Sachs furore this week highlights what many corporate treasurers and CFO’s already know; bankers and their advisors are thinking “how can we offer this client products that they will think offer them a good risk/reward proposition.” “Think” ….. It gives the game away rather well.
In 2009, many non-financial corporate CFO’s talked of near death experiences. Once bitten, twice shy. They need to understand the means to the end; how products and services offer them more sustainable value. Ultimately they want better value for money and better funding processes that ensure if the dog tries to bite them again, it’ll be the dog ending up worse off.