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The banks or our clients: Where do our priorities lie?

30th Oct 2008
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We all have bad dreams in which we wake at the last minute just before tragedy strikes. I’d be surprised if any of these have recently concerned the failure of the banking system as we know it, but the prospect is becoming a bigger part of waking reality each day. Last week I was talking to a client – hands free of course – whilst on the way to work. He suggested that if the Bank rate fell it might be a good thing. I wasn’t so sure. What with inflation on the march, the economic situation (excluding the credit crunch) did not appear favourable to such a cut, and from a business perspective if the LIBOR disparity did not return to normal this would not appear to help UK businesses.

By lunchtime the UK along with five other jurisdictions had cut its rate by half a percent and I was left to eat humble pie - or was I? Granted mortgages would get cheaper for many which will hopefully put more money into pockets to reduce credit card debt and personal overdrafts but will this be positive for business? I have strong reservations about this.

Our job as Chartered Accountants has been to obtain money for customers at the best possible rate by submitting a professional business plan on behalf of our clients – a plan that ticks all the boxes. The increase in market players over the last few years made this money all the more accessible and clients were delighted with many sub-2% over base loans being granted against the more traditional 2.5% to 3% over base rates of the 1990’s. With the current gap between the three month LIBOR and bank base rate many of these cracking deals are now seeing the lender taking on water at an alarming rate and the longer it continues the worse it gets for our cash strapped bankers.

Things cannot continue like this. There has to be a change. When bankers tell us you have to remember we are a profitable business they appear to forget that cash is king. Is this not what they’ve been telling our overspending clients for years, causing them sleepless nights and high levels of stress fretting over renewing a facility? Last weekend a large number of RBS managers probably understood how these customers felt for the first time in the same way that HBOS managers did last month. This is very sad because the majority of the bankers we come across are hardworking individuals who do a great job for whichever bank they work for, generating profits to be passed up the line so that more “strategic committees” can invest them in riskier projects that then often go belly-up leading to provisions in the bank’s balance sheets and a change in chief executive after a riotous Annual General Meeting.

So should we feel sorry for the banks’ plight? On traditional values we should not because the banks are making a fortune and it is our clients we represent. But in an economy where nothing is certain any more we need to take a step back and consider the bigger picture. At the present time it appears that some clients are financially stronger than the banks. But to remain so we need the banks to survive, so that we have a financial system. Whilst the Government tells us it will cover any losses how do we really know how much money they have to throw at the problem if push really comes to shove?

So how do we handle the meetings when the banks want to increase the interest rate? After all, if banks are going to lend less they need to generate more income from those lends they do and we cannot expect them to make a gross loss on existing borrowing! Or can we? Ultimately whatever the bank says is likely to go but we might have some opportunity to influence a minor decrease. It seems to me our job is to keep a close eye on how LIBOR moves and explain the facts of life to all of our clients now so that they are prepared if the meeting comes. Don’t get me wrong I am not suggesting that we capitulate and suggest clients agree to any old thing but I do feel that in the short term opportunities to change banks will be limited and a positive relationship rather than a polarised one might benefit the business. If the bank does misbehave and push through something unacceptable that client needs grooming for a change once confidence returns and switching becomes an option again.

I’m also concerned by the lack of economic understanding some of our media experts and Government officials appear to exhibit. Our Prime Minister is a first rate example telling the BBC Ten O’Clock News that he wants to see a return of confidence and banks lending once more to businesses and the general public and that this Government help is aimed at doing this. It might be that too much information will really spook the horse but I cannot see this situation returning until well after this financial crisis is over and who knows how long this is going to take. To make a permanent end to it there needs to be a more realistic multiple applied to mortgages, less spending and a lot of saving. Have we got the type of economy to tough out those three things and survive. I fear we are going to find out – but that is another article all together! For the time being let’s consider where our priorities lie.

Nick Forsyth is a partner in Lambert Chapman LLP based in Braintree Essex. Lambert Chapman LLP are an 8 Partner Firm and members of the Uk200Group.

Established in 1986 UK200Group is the UK’s leading mutual professional association of over 120 quality assured independent accountants, including lawyer firms as well as 50 International Associate member firms around the globe. UK200Group provides services and products that are designed to enhance the business performance of its members. Telephone 01252 401050. Email [email protected] or visit


Replies (2)

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By JSJ54
04th Nov 2008 10:22

Mine too James
Maybe we're just old fashioned though!

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By mac.scruttonbland
31st Oct 2008 16:18

My priority is my clients' survival
I think that Nick may be being a touch naive ! He became a partner in 1993 so I presume that like all people who have only been in business for the last 15 years or less, there has never been a period in his business life that hasn't been a period of growth.
By aceeding to increased bank rates and charges, and certainly even more requirement for security (and as the value is dropping the quantity required will be increased) that the banks will almost certainly require, does he honestly believe that our clients should be grateful ?
The banks brought it upon themselves, Overpaid egos did deals that were unsustainable.
Who is paying for those errors, taxpayers.What are Nick's clients? (hopefully) taxpayers.
So Nick wants his clients to pay twice for the bankers errors.
It is our job to get the best deal for the client, not accept that the clients will have to have their legs lifted for a couple of years whilst the banks repair their Balance Sheets at our clients expense. "if the bank does misbehave" he says, no doubt if the bank does, it is because they will have been allowed to.
He states that there should be "less spending and a lot more saving" Saving can only come from profits generated, and if the bank have jacked up their costs, there will be less profit, hence lees saving.
So should we all put these savings into pension contributions and watch them go south as well ? ( ask a Baby Boomer how he's feeling about pensions at the moment, especially if he was originally with Equitable) or put the savings into the highest interest paying bank (but is it a safe one?)
He states "for the time being let's consider where our priorities lie" mine are with my clients, not trying to make friends with Bankers.

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