“Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.”
Polonius’s counselling of his hot headed son Laertes (Hamlet: Act 1) is perhaps more apposite in the light of the Treasury Select Committee’s interrogation of Barclays Bank’s former Chief Executive Officer Bob Diamond. The SME rate-swop episode was just one of the difficult issues which Mr. Diamond tried to defuse. As the proceedings developed much of the questioning centred on the culture of greed within the bank.
Barclays Bank Plc is owned by its shareholders. Its prime responsibility is to make profits which are distributed by the payment of dividends many of which reach Britain’s pension funds. The Diamond era has been the result of a Board of Directors loving the investment revenues and perhaps, in some cases, turning a blind eye to the operational dimensions.
Just as Nick Leeson brought down Barings Bank in 1995 (his leaving note said “I’m sorry”) there are periods of excess when greed simply overtakes corporate governance and regulatory prudence. There is a lemming type of ethos for a period of time.
Herein lies the real problem facing Britain’s enterprising businesses. They need the money transmission facilities which the banks offer as an essential component part of their business operations. They accept they must pay for those services. Additionally many try to use the funding products they believe might be available to them.
Traditionally the bank overdraft has been a useful support. It is desperately difficult for SMEs to control their cash flow. One late payment by a bigger customer, or perhaps a bad debt, can cause real stress. The overdraft used to provide cover for this situation but the banks now resist providing unused limits. Where they do offer temporary support they pile on the charges.
Despite the public protestations the banks dislike SMEs because their profit potential is de minimis in the context of profit performance. They are too much trouble. That is the reality. When the banks do support enterprising businesses they prefer asset financing and invoice discounting which ties up the borrowers sales ledger.
The various government backed loan schemes fail because the banks, in their heart of hearts, do not like doing them and they are administratively burdensome.
There is no simply remedy but the brains at the Treasury need to start by recognising that big banks do not like small businesses.