Revamped loan scheme will make ‘big difference’ says Royal Bank of Scotland

(qlmbusinessnews.com via bbc.co.uk – – Fri, 3rd April 2020) London, Uk – –

A revamped loan fund for ailing firms hit by the coronavirus lockdown will have an immediate impact, RBS has said.

RBS chairman Sir Howard Davies admitted there had been problems but expects to see a “sharp increase” in lending to small firms in the next few days.

On Thursday, Chancellor Rishi Sunak overhauled the scheme amid claims banks were taking advantage of the crisis.

The government has pledged to guarantee £330bn of loans but only £145m has been lent so far.

Small firms say they have struggled with onerous eligibility criteria for the government-backed loans, which are being issued by High Street banks and other lenders.

They have also complained of facing interest rates of up to 30% and being asked to make unreasonable personal guarantees.

It comes as the UK is facing recession as large parts of the economy are shut down.

On Friday, the influential Purchasing Managers' Index (PMI) survey showed Britain's dominant services industry suffered its biggest slump in March since 1996, sinking from a reading of 53.2 to 34.5.

Any figure below 50 marks contraction.

Mr Sunak said that under changes to the Coronavirus Business Interuption Loan Scheme (CBILS):

  • Applications will not be limited to businesses that have been refused a loan on commercial terms, extending the number who benefit. However, the Treasury has not capped the interest rates banks can charge.
  • Banks will be banned from asking company owners to guarantee loans with their own savings or property when borrowing up to £250,000
  • Larger firms with a turnover of up to £500m will also be eligible for more help – with state-backed loans of up to £25m available to firms with revenues of between £45m-500m.

Sir Howard, who used to chair the Financial Services Authority (now known as the Financial Conduct Authority), told the BBC's Today programme that the process of checking borrowers' eligibility had been “difficult”.

He also said RBS had struggled with the demand after inquiries about the loans jumped “by 45 times” in a week.

“I think we have to accept that the scale of this process and the speed with which it's been put in place has caused challenges for everybody,” he said.

“But we've had good discussions with the Treasury and small firms, and I think the changes announced overnight will make a quite a big difference.”

On Wednesday, Business Secretary Alok Sharma said it would “completely unacceptable” if any banks were unfairly refusing funds to good businesses in financial difficulty.

He also referenced the financial crisis – when taxpayers bailed out a number of the UK's largest banks – suggesting lenders should now repay the favour.

However, Sir Howard told the BBC that comparing the current crisis to 2008 was “rewriting history”.

“In the last crisis the problem was that the banks didn't have the money to lend, there was a credit crunch.

“We're not in that position at all. The banks have got the money to lend, we have a large amount of capital, we are not constrained in the volumes we can lend.”

On Thursday, Mr Sunak said the government was making “great progress” on supporting businesses to help manage their cashflows but needed to take “further action” by extending the scheme.

Analysis: By Simon Jack

There has been widespread concern, acknowledged by the government, that some of the emergency measures to provide financial assistance to businesses are not working.

Too few firms felt able or willing to take on loans that carried an 80% government guarantee to the lender but not the borrower. The Treasury has announced new rules, meaning business owners asking to borrow less than £250,000 will no longer have to offer up personal guarantees.

Perhaps most importantly, the requirement for companies to have first tried to get a normal commercial loan elsewhere will be dropped.

However, they are still loans. Companies wishing to take them out will be 100% liable for the debt and the government has not capped the interest rate banks can charge even though banks are able to borrow at close to 0%.

The loans may now be available to more businesses but what's not clear is whether firms want them.

‘Big step forward'

Labour welcomed the measures but accused the government of being “behind the curve” when implementing support measures.

“There remain huge gaps in support for employees and self-employed that must be addressed immediately if people are to avoid facing serious hardship in this crisis,” said shadow chancellor John McDonnell.

The head of the Confederation of British Industry, Carolyn Fairbairn, described the changes as a “big step forward” although she said more detail was needed.

“Each week brings unprecedented levels of economic support and it's encouraging to see the government stepping in where urgent help is needed.”

Mike Cherry, national chairman of the Federation of Small Businesses, told the BBC's Today programme: “It's a very necessary and timely intervention by the chancellor, because clearly, businesses were being promised interest-free, fee-free, government support by the banks.

“Time and time again, the FSB has heard from our members and other small businesses who've approached banks seeking these emergency loans that they were being offered anything but.”

Stephen Jones, the chief executive of UK Finance which represents the banks, also welcomed the changes.

Speaking to the Today programme, he said: “It was clear that those viable businesses, who were required to be offered under the terms of the scheme commercial lending under commercial terms, felt aggrieved that they were not given access to the scheme and therefore the change gives the scheme to all businesses who are capable of repaying debt after this crisis is over.

“This change is extremely welcome and it means that banks will not be forced to make very unenviable assessments in terms of who cannot or can access the scheme in terms of viable businesses out there.”

UK government to cover the losses of bus companies in England over the next three months

(qlmbusinessnews.com via bbc.co.uk – – Fri, 4th April 2020) London, Uk – –

The government will cover the losses of bus companies in England over the next three months to ensure that services can still run.

The UK's bus industry says passenger numbers have “fallen off a cliff” since the government advised people against all non-essential travel.

That caused bus firms to cut services.

But a new £167m fund will ensure that bus companies can cover their costs on essential services so that key workers, such as NHS staff, can get to work.

Similar agreements are already in place in Scotland and Wales. The deal in Wales includes free bus travel for NHS workers.

Hundreds of millions of pounds of support measures from local and central government have been dedicated to the UK's bus industry to ensure that companies can survive through the coronavirus crisis and keep a reduced bus network moving.

The latest figures from the Confederation of Passenger Transport (CPT), which represents bus and coach companies in Britain, showed that passenger numbers were down by 75%, although the numbers from bus operators suggest numbers are even lower.

Empty buses

With people advised to stay at home, many buses around the UK are being driven around with no passengers on them at all.

CPT boss Graham Vidler said the funding would “plug the gap” between the costs of running essential routes and the income received by companies. He said that would allow “critical journeys to continue”.

Government support is conditional on bus companies operating about half of their routes.

Operators have also pledged not to let buses carry more than 50% of their maximum capacity to ensure that social distancing is possible on board.

Stagecoach said on Friday that its local regional bus companies were currently seeing sales at about 15% of “normal levels”.

Martin Griffiths, the chief executive of Stagecoach, said that in a “very challenging period”, the new funding would mean “key workers can still get to and from work, and that communities can still access other services”, such as shopping for food or picking up medicines.

Stagecoach added that its Megabus inter-city bus service in England and Wales would be suspended by Sunday 5 April.

Transport groups Go-Ahead and FirstGroup also said they had seen huge falls in bus use, with passenger numbers and revenues down by about 90%.

Go-Ahead boss David Brown said the government funding package was “crucial” to ensure the company could provide essential services.

Transport Secretary Grant Shapp, emphasised that people should “stay at home if possible”. However, he described buses as a “lifeline for people who need to travel for work or to buy food”.

“It's absolutely vital we do all we can to keep the sector running,” he said.

Bus companies aim to temporarily lay off around half their staff who will then receive income under the government's coronavirus job retention scheme.

Before the coronavirus outbreak the government had earmarked funding to reopen bus routes which had been cut in recent years. Some of that money is now being spent on keeping existing routes running.

Any losses incurred by bus companies since the government advised people against all but essential travel should be covered under the rescue package.

By Tom Burridge

UK to freeze loan and credit card payments for three months – FCA

(qlmbusinessnews.com via news.sky.com– Thur, 2nd April 2020) London, Uk – –

The Financial Conduct Authority says those needing help under the stop-gap measures should not see their credit scores affected.

Consumers left in financial difficulty by the coronavirus crisis should be offered a three-month freeze on credit card and loan repayments under emergency plans by the City watchdog.

The Financial Conduct Authority (FCA) also said those affected who have overdrafts should see them charged at zero interest for three months.

Customers should not see their credit ratings affected if they have to use any of the temporary measures, the watchdog said.

The plans add to measures already announced by the government to support mortgage holders, renters, temporarily-laid off workers and the self-employed during the crisis – which has brought large parts of the economy to a standstill.

The FCA said they would provide a “short-term, temporary stop-gap” offering help for customers “who until now have been financially stable”.

It added that the guidance would not prevent lenders from offering more generous assistance – as some already were.

Christopher Woolard, the FCA's interim chief executive, said: “Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK.

“If confirmed, this package of measures we are proposing today will help provide affected consumers with the temporary financial support they need to help them weather the storm during this challenging time.”

Vim Maru, retail director at Lloyds Banking Group – which includes Lloyds Bank, Halifax and Bank of Scotland – said: “We welcome today's guidance from the FCA and we continue to work closely with them through this unprecedented time.

“Since the start of the pandemic we have helped thousands of customers using the temporary support measures already introduced.”

Martin Lewis, founder of consumer website MoneySavingExpert.com, said the FCA move marked an unprecedented intervention from regulators and would end a “banking lottery” about what help customers could expect from lenders.

“Payment holidays mean exactly what they say – you don't pay, but you can still be charged interest,” Mr Lewis added.

“And with interest rates often high, especially on cards, that can mean storing up trouble for future.

“Those struggling for cashflow may have no choice, but if you don't need to do it, don't.”

By John-Paul Ford Rojas

WeWork founder Adam Neumann threatens to sue Softbank after scrapped rescue deal

(qlmbusinessnews.com via theguardian.com – – Thur, 2nd Apr, 2020) London, Uk – –

Adam Neumann had been lined up to sell $970m of his own shares to Japanese investor

WeWork’s founder and former chief executive, Adam Neumann, has threatened to sue SoftBank, the office space company’s biggest investor, after it pulled out of deal to buy $3bn (£2.4bn) of WeWork shares – including almost $1bn from Neumann himself.

SoftBank, which is run by the Japanese billionaire Masayoshi Son, announced on Thursday that it was terminating a $3bn share tender rescue deal hammered out last October to save WeWork from collapse.

SoftBank said it had “no choice” but to scrap the rescue deal because WeWork had failed to meet several conditions. It also cited concerns about “multiple, new, and significant pending criminal and civil investigations”.

The Japanese conglomerate said it remained “fully committed to the success of WeWork” but “several of those conditions were not met, leaving SoftBank no choice but to terminate the tender offer”.Advertisement

The deal would have mostly benefited Neumann, who was lined up to sell $970m worth of shares even as thousands of WeWork employees were laid off with very little compensation.

“Adam Neumann, his family, and certain large institutional stockholders, such as Benchmark Capital, were the parties who stood to benefit most from the tender offer,” SoftBank said. “Together, Mr Neumann’s and Benchmark’s equity constitute more than half of the stock tendered in the offering. In contrast, current WeWork employees tendered less than 10% of the total.”

A special committee of WeWork’s board said it was disappointed that SoftBank had pulled out of the deal and it was considering “all of its legal options, including litigation”.

The deal was hastily arranged in October 2019 as part of SoftBank’s rescue of the office-space provider after its planned flotation on the stock market was scrapped. WeWork had repeatedly cut the price of the IPO as investors balked at its initial valuation of up to $65bn. Neumann could have made a potential $14.3bn paper fortune if the company had floated at the top end of estimates.

Softbank’s decision to pull out of the share deal means it will also no longer be obliged to provide WeWork with $1.1bn in debt financing, leaving the office space provider facing a cash crunch as many of its tenants across the world pull out because of the Covid-19 crisis and government-imposed lockdown conditions.

WeWork signs long-term leases with commercial landlords then rents that space to freelancers and small businesses, which have been particularly badly hit by the coronavirus crisis global economic shutdown. The company has warned its bondholders that it does not expect to hit its 2020 financial targets.

WeWork has grown to become the single biggest office tenant in Manhattan, and the second-largest in London after the government. It has expanded from offices to student halls-style communal living blocks, private schools and luxury gyms and boot camps.

The president of the Boston Federal Reserve bank, Eric Rosengren, warned in September that the business model of co-working companies such as WeWork could make the next recession worse by sparking a run on commercial property.

WeWork has signed long-term rental commitments worth $47bn with US landlords alone. If WeWork were to go bust its landlords would struggle to collect the promised lease payments they are owed. That could leave them unable to pay their bank loans, and in turn leave banks facing losses.

At a company party in 2018 Neumann told his staff that WeWork’s mission was to “to elevate the world’s consciousness” and that “there are 150 million orphans in the world. We want to solve this problem and give them a new family: the WeWork family.”

Neumann’s bravura did not go down so well with Wall Street investors when WeWork published its flotation prospectus in August 2019. It warned potential investors: “Adam’s voting control will limit the ability of other stockholders to influence corporate activities and, as a result, we may take actions that stockholders other than Adam do not view as beneficial.”

The prospectus demanded that each of “Adam’s” shares should carry 20 times the votes of ordinary shares, and that his wife should have a say in selecting his successor should he die.

He has also had to fend off damaging allegations about his conduct, including the revelation that he smoked cannabis on a private jet. The company said it would sell the $60m Gulfstream plane, which Neumann had used to attend tequila-fuelled parties with the likes of the Red Hot Chili Peppers, Donald Trump’s son-in-law, Jared Kushner, and Will Smith’s son Jaden.

Hundreds of loans have been made under UK coronavirus scheme – Treasury

(qlmbusinessnews.com via uk.reuters.com — Wed, 1st April 2020) London, UK —

LONDON (Reuters) – Hundreds of loans have been made under an emergency scheme launched last month to help small and medium-sized companies get access to bank credit during the coronavirus crisis, a spokesman for Britain’s finance ministry said.

“There are hundreds of these loans that have gone out,” the Treasury spokesman told reporters when asked about reports of companies struggling to use the Coronavirus Business Interruption Loan Scheme. “Cash has very much gone out the door.”

By William Schomberg

Some of UK’s Banks bow to pressure and axe shareholder payments

(qlmbusinessnews.com via bbc.co.uk – – Wed, 1st April 2020) London, Uk – –

Some of the UK's biggest banks have agreed to scrap dividend payments and hold onto the cash, which may be needed during the coronavirus crisis.

The Bank of England welcomed the decision to suspend the payments to shareholders and urged the banks not to pay bonuses to senior staff either.

The banks, which include NatWest, Santander and Barclays, were due to pay out billions to shareholders.

But in recent days they have come under pressure to hold onto the money.

‘A sensible step'

The deputy governor of the Bank of England, Sam Woods, wrote to some banking bosses asking them to suspend dividend payments. He asked them to confirm their decision by Tuesday evening.

In a statement, the Prudential Regulation Authority, which is part of the Bank of England, said: “Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption.”

Between them, Lloyds, Royal Bank of Scotland, Barclays, HSBC and Standard Chartered were expected to pay a total of £15.6bn to shareholders, according to analysis from investment firm AJ Bell.

But they will now retain those funds and not pay out any money to shareholders until at least the end of the year, which the Bank of England said “should help the banks support the economy through 2020”.

Many economists are predicting that the UK, in common with other large economies, will enter a recession this year, with output set to plummet.

Last week, a closely-watched early indicator of economic activity fell to its lowest ever reading. That led economists at Capital Economics to predict a 15% contraction in the UK's economy during the second quarter of the year.

‘Prudent' move

Stephen Jones, chief executive for UK finance, the trade body for banks and finance companies, told the Today programme that banks were considering scrapping dividends before the Bank of England mandated it.

“It's very prudent for banks to be retaining capital rather than distributing it in the current environment,” he said.

Losses will increase on existing loans, he said, meaning lenders need a bigger buffer to protect deposits and keep the bank running.

“It's important that the banks are given as much firepower as they can to support the economy,” he added.

However, the Bank said it did not expect the cash to be needed, noting that the banks had more than enough money in reserve to deal with both a global recession and a shock in the financial markets.

Banks were criticised during the financial crisis 12 years ago when they paid dividends months before needing the biggest bailouts in history.

Since then, banks have been forced to hold more capital to prevent the need for more public money to be spent on them, although not all banks have fully recovered. The government still owns 62% of Royal Bank of Scotland, for example.

Barclays' investors will be the first to be affected by the halting of dividends. Its shareholders had been due to share a payment of more than £1bn on Friday.

Barclays chairman Nigel Higgins said suspending the payment was a “difficult decision”.

“The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now, and ensure that Barclays is well placed to continue doing what we can to help through this crisis,” he added.

UK consumers are protected up to £85,000 per bank under the Financial Services Compensation Scheme. In other words, if a bank collapses, savers will get any money in these accounts up to £85,000 paid back in compensation.

Joint accounts have a protection level of £170,000.

Analysis: Faisal Islam

This is a significant move from the commercial banks.

They decided not to pay shareholders several billion pounds worth of dividends after receiving a firmly-worded letter from the Bank of England, which wants the banks to hold on to the money to support lending in the economy. And, with some of the payments due to be made in just days, the impact will be felt almost immediately by some shareholders.

The Bank of England's watchdog, the Prudential Regulation Authority, also made clear that it does not expect any of the UK commercial banks to pay cash bonuses either, although that is yet to be agreed.

The logic here is to preserve cash for where it is needed, but the regulator has also been making the point that this crisis is a moment of potential redemption for the sector. The banks have the opportunity to distance themselves from the financial crisis, which they created, to become the economic saviours of the coronavirus crisis. But that depends on them preserving cashflow, overdrafts and funding lines to businesses that will become viable again once the pandemic passes.

For example, the chancellor's freelance worker scheme will result in substantial cash sums being deposited in bank accounts, but not until June, and much depends on banks keeping workers financially afloat until then.

The cancellation of dividends also piles on the pressure for other sectors that have received money for furloughing workers – or even more direct government backing – to also consider scrapping their dividend payouts.

“These are difficult decisions, not least in terms of the immediate impact they will have on shareholders,” said Barclays chairman Nigel Higgins.

“The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now, and ensure that Barclays is well placed to continue doing what we can to help through this crisis.”