Sunday December 21, 2014 Search
Weather | Athens
17o C
10o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Hunting credit, firms look beyond wary EU banks

When David Armitt needed to refinance loans last year for his 153-year-old manufacturing company in Yorkshire, he found British banks reluctant to lend. So he took the nuclear option.

The finance director in Huddersfield turned instead to San Francisco-based Wells Fargo, borrowing $28 million after putting up as collateral the gearboxes that his firm, David Brown Gear Systems, makes to propel nuclear submarines.

European Union banks have shrunk their loan books by over $5.5 trillion, more than a tenth, since the global crisis of 2007-08, cutting risk on their balance sheets but choking off credit to companies and stalling the region's recovery.

Faced with this retrenchment, businesses have looked elsewhere for alternatives, using asset-based loans and turning to bond markets, private equity firms, insurers, their own suppliers and even crowds of private savers to raise funds.

And although many EU banks deny holding back, blaming weak demand for the decline in credit, such diversification by companies away from bank lending seems here to stay, even once the retrenchment in bank balance sheets comes to an end.

In a region where banks previously accounted for almost two thirds of corporate funding - double the level for their U.S. counterparts - that is a major opportunity for other lenders.

"Companies have latched on to the fact that they need to diversify,» said Richard Cranfield, who advises corporate clients on financing at law firm Allen & Overy in London. «I don't think that toothpaste is going to go back in the tube.

Estimating that banks may only be half way through a decade of modification in their business models following the global crash, Cranfield added: «They are still adjusting, still simplifying their structures and getting out of certain businesses and that keeps pressure on ... where they can lend."

David Brown's loan from Wells Fargo takes more work and administration than a typical secured bank credit as it uses harder-to-value assets as a guarantee. Those include the gearboxes it makes for a range of specialist machinery, from submarines and tanks to oil rigs, as well as client invoices.

But Armitt found it overall cheaper and more flexible.

Banks across Europe may say they are «open for business» and deny blame for shrinking credit - lending to euro zone firms fell 2 billion euros in December - but their customers, notably smaller firms, tell a different story.

David Brown, which once owned Aston Martin and whose «DB» marque still appears on the sports cars beloved by James Bond, saw orders for its gearboxes increase by 20 percent in 2013 but met resistance - or indecision - at British banks.

"What was frustrating was the constant messages of 'we're open for business', but there was never clear criteria whether they can or can't do something,» said Armitt. «You can sense the hesitancy on whether they can work with you."

So common have these sentiments become among British firms, that parliament in London opened an inquiry this week.

Frustration with European banks is providing opportunities for other types of lender, including private equity firms which more typically buy businesses in order to sell them on again.

"Companies today are much more inclined to look at alternative financing strategies because they have suffered a lot from banks not supporting them through the crisis,» said Miguel Rueda, a partner at private equity fund JZCP, which last year set up a joint-venture to lend to corporates in Spain.

Especially for smaller businesses, said Rueda, «This has been a very rough ride."

A major shift in the sources of corporate financing is already evident. Last year, big European firms used syndicated bank loans for around 27 percent of new funding, similar to their U.S. peers, according to Thomson Reuters data. In 2007, loans from bank syndicates provided 62 percent of their funds.

Tradeable bond issues have accounted for two thirds of new funding over the last four years and equity capital 6 percent.

For banks, this is not necessarily bad news. Many will make more money from arranging a bond issue and follow-up work than from a straight loan, where margins have often been razor thin and priced as loss-leading products to win other business.

There has been a flood of mid-sized companies, including from debt-scarred Italy, Greece and Spain, making use of the bond market for the first time.

More than twice as many debut issuers tapped the European high-yield bond market in 2013 than in 2012, and ratings agency S&P said it assigned ratings last year to 175 non-financial companies in western Europe for the first time. They included Italian construction group Salini, Finnish luxury bathroom ceramics maker Sanitec and British clothing retailer New Look.

Italian spectacle maker Marcolin went to the bond market to raise 200 million euros in November and found 95 percent of the paper being bought by foreign investors.

Calling the issue «a very positive experience», finance chief Massimo Stefanello said it financed an acquisition and repaid bank lending: «And it was also a good opportunity to get people in the financial market to know the company."

The bond was slightly more expensive than a bank loan and took three months of preparation but its structure is more flexible and covenants less complex than those on bank lending.

Record low interest rates have also offered companies cheap headline yields. British property firm Grainger, for example, sold a 200 million pound ($333 million) bond paying 5 percent, the lowest ever for a debut sterling high-yield bond.

Though they are the biggest source of non-bank credit, bonds are not for all. Many smaller companies find them costly and cumbersome to arrange. But there are other options.

The European Commission speaks of reviving securitization, discredited by its role in the crash, which involves packaging loans to various borrowers into bonds sold on to investors.

Even bolder, the EU executive is looking at ways to channel household savings into long-term investment, financing small companies, infrastructure and other development.

Some private funds are targeting corporates. JZCP's Rueda helped set up Toro Finance, a vehicle with 400 million euros to lend in Spain: «These companies have loans and significant banking relationships, but the banks are not supporting them in growth,» he said. «That's where the opportunity is for funds - you can go in there and lend alongside the banks."

Some funds are also working with banks to share in loans, with the fund taking a riskier tranche and a bank lending a cheaper slice with priority for repayment.

There has also been a boom in online crowd-funding, where people club together to back a project with equity or loans. That global market has doubled in size every year for five years, but remains modest, at about $6.4 billion in 2013.

Big companies are also providing credit to their own corporate customers. Britain's top 35 listed manufacturers provided 16 billion pounds to clients last year, up almost 50 percent from 2008, according to LPM Outsourcing, which provides services to the asset-finance industry.

Some have set up big financing arms for longer-term loans, including U.S. computer maker Dell. It set up a financial services unit in August to offer finance to European customers.

Direct funding has also increased from insurance companies, particularly in France, where companies have traditionally depended on banks to provide some 80 percent of their credit.

"Investments in infrastructure are natural for us,» said Henri de Castries, chief executive of French insurer AXA, referring to loans rather than equity stakes. «We study more and more of them, and they will rise progressively."

Banks, meanwhile, will have their work cut out persuading customers they are ready to focus again on lending: «I don't blame them deleveraging,» said David Brown's Armitt. «But they are not clear themselves on what they are trying to do."

[Reuters]

ekathimerini.com , Wednesday February 26, 2014 (11:40)  
Workers rush to get early retirement
Piraeus Containter Terminal goes from strength to strength
Moscovici: Creditor inspections to become less frequent and ‘lighter’
Property capital gains tax halt
Environment Ministry to reconsider controversial bill
The government over the weekend appeared to backpedal on proposed amendments widely seen as compromising legislation protecting Greek forests as well as Plaka, Athens’s old quarter. The bill...
Corfu to host country’s first hydroplane strip
Merchant Marine Minister Miltiades Varvitsiotis and Deputy Infrastructure and Transport Minister Michalis Papadopoulos have signed a decision paving the way for the country’s first hydroplan...
Inside News
BASKETBALL
Explosive Barca unfazed by Panathinaikos, bomb scare
Panathinaikos lost 80-67 at home to Barcelona on Friday in a rather meaningless game at the end of the first group stage of the Euroleague, but the encounter will be remembered for the bomb ...
SOCCER
Abidal cuts short playing career at Olympiakos
Former France and Barcelona defender Eric Abidal announced his retirement from football on Friday, a day before his last match. Abidal said he will finish after playing for Olympiakos agains...
Inside Sports
COMMENTARY
The big picture
In his second term, US President Barack Obama is taking steps to enshrine his legacy and solidify America’s standing in the 21st century. His recent decision to normalize relations between t...
EDITORIAL
Get your facts straight
The danger that political discourse in Greece will sink to the basest levels of vulgarity is already more than apparent from the allegations we have heard bandied about over recent days. The...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Environment Ministry to reconsider controversial bill
2. Corfu to host country’s first hydroplane strip
3. Political upheaval sharpens after bribe claims with threats and insinuations
4. Police gets new communications system
5. Most Greeks say they recycle daily
6. Probe into revenues of 2 mln euros in Halkidiki municipality
more news
Today
This Week
1. The big picture
2. Get your facts straight
3. Political upheaval sharpens after bribe claims with threats and insinuations
4. Environment Ministry to reconsider controversial bill
5. Changes on E9 property declarations possible until end-year
6. Police gets new communications system
Today
This Week
1. Samaras summons bond vigilantes with euro exit talk
2. A friendly yet firm message from Pierre Moscovici
3. Europe's drama in Greece needs final act to avoid tragedy
4. High stakes
5. On the edge but not gutless
6. Gap between SYRIZA and New Democracy closing, says poll
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.