Be very careful in your dealing with Banks and the assumptions you make.
Times are tough we know and we are all faced with learning afresh many rules of business.
I was around during all the cycles from the seventies recession, but at no time before were we put in a position where we became unsure whether or not we can trust our banks or our bank managers.
A few weeks ago I told about a very well run and successful Builder I know who had to make all 32 of his team redundant because his bank changed the rules on his business overnight.
In their subsequent negotiations, the Bank demanded a £95,000 arrangement fee to renew loans that had already been previously agreed and on which arrangement fees had already been paid. They also asked for the interest to be increased from 1.5% over base to 3.25% over base. They builders have now reluctantly agreed to pay a £15,000 arrangement fee (down from £95,000) and 2.25% over base.
All I hope is they can now sell their remaining completed houses in stock to recover the value they had previously accumulated carefully in their business, before it is closed down for ever.
One thing you can be sure is when they start their next business, which they undoubtedly will in due course, they will not go anywhere near this bank. I wonder how many other previously loyal clients this bank will be losing, because of the short term thinking they are adopting after having been bailed out by the government, who have asked the banks to continue to lend to the successful businesses that they were previously prepared to lend to last year
This week we came across another business who had shown admirable foresight last year and had fixed £5million borrowing for 5 years at 4.5% interest rate with a Scandinavian bank.
Last week he was told that if he was not prepared to renegotiate the deal, the bank would examine their covenants every day to see if the client had committed any technical breaches and, if they found any breaches, they would call in all the borrowing which would make him bankrupt.
What sort of message is that sending out to the rest of us? Why would we ever want to do business with them, when you cannot trust them to be anything other than short term thinkers.
Don’t get me wrong – I have several friends who are bank managers. They are all shell shocked by what they see as their betrayal by the senior management, who have encouraged them to buy shares in their banks prior to the recent crash.
Most importantly they are so worried that the relationships that they have worked so hard to cultivate with their customers are being decimated by the short term thinking being imposed on them from above.
They have not suddenly become bad bank managers, but they recognise the damage that is being wreaked on businesses by the unilateral policy changes, and they will need to work exceptionally hard to restore confidence in the value of their word in future. WORRYING TIMES INDEED!