Something Doesn't Add Up 
The EESC, an EU quango, says new "safe" securitisation will provide " EUR 100 to 150 billion" in credit. The actual amount over the last few years has been EUR80bn or so p.a. I do hope they're right.





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Oil Causing Troubled Waters 
Markets are strange. Lloyds' latest Business in Britain report shows a reasonable level of confidence. Whilst the FT reports a 95% correlation between the (falling) oil price and the FTSE. I can't see the logic. But markets do latch onto strange things. I remember in the 80s that the driver was US money supply figures-I used to watch the dealers hopping about as the number came in. No-one focuses on that any more.

It used to be that rising oil prices were seen as bad for business. That makes sense as it puts their costs up. Now the markets think that falling oil prices are bad for business. But businesses seem not to have noticed: have a look at Lloyds' report LINK TO REPORT





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Current Accounts-Hard To Get 
I've been working with a couple of companies setting up in the UK. In both cases they plan to get funding to SMEs.

The first is a new business set up by an established and reputable financier. We just need a current account-no loans, no bank financing required at all. We've had 7 rejections to date.

The second is a reasonably large international firm based in a first-world country which wants to set up in the UK. It is also proving very difficult to get a current account for its new UK operation.

Why? Some might say that banks see non-bank lenders as competition and want to strangle them at birth. I think it's more likely that the excessive regulatory regime post GFC makes bank employees paranoid and the default position is "no".

Meanwhile willing lenders are unable to provide funding to small dynamic firms which need the cash to grow.



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Hire Someone Who Knows What They're Doing 
A man I spoke to yesterday hired an accounting firm to advise on securitisation. He now regrets it. He said "I would take on an advisor who has significant experience in a senior role".

That's what we do. As my friend David McKibbin the "credit plumber" asks, if you have a problem with your pipes do you send for a professor of fluid dynamics or a plumber? My man from yesterday found out the hard way.



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Trade Finance and Invoices: Good Yields, Low Losses 
I was looking at Providence's retail bond yielding 8.25%. Underlying business is invoices/trade. Loss experience zero. Gross income 20%+.

There is a pattern here. Urica seems to be doing well. It quotes fees of "£85 to £250 on a £10,000 invoice". Also, I recently visited the new UK end of an established trade finance specialist. They will be charging IRRs of 20%-ish. And clients will pay: if the bank has capped my funding line (not unknown, even for good credits!) and I have an order with 18% gross margin, I'll willingly pay you 2% a month and keep the rest.

Compare and contrast with a big bank I visited recently. They do trade receivables deals in the USD 100-300m range. Margins on senior pieces can be below 1%.

So Providence and the big bank both have zero loss experience but one yields 20%+ gross and the other 1%.

Why are more providers not springing up at the smaller end? Well some are, as shown above, but there is still plenty of unmet demand. Potential investors tend to be unadventurous and terrified of "unknown unknowns" even when good and high-yielding assets can be insured and ringfenced. "We don't do start-ups" is the usual mantra. So their investors get lower yields, business misses out on funding and the economy grows less than it could.



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