The current state of London’s insolvency market

Posted on June 07, 2012 by Patrick Wadsted

Having entered the Insolvency profession in 1974 at the height of the secondary banking crisis, I have had the pleasure (?) of experiencing a number of recessions over the passing years.

What can I say about the present recession (double dip or chocolate chip) that makes it different from the others and how it has affected the market in London for corporate recovery/ insolvency cases? Unfortunately very little, because this one is so difficult to read, even for an old hand like me!

We are told that some of the main indicators of the current market are:

  • Lack of funding from banks
  • The bank’s “retreat” from the property sector
  • Banks’ liquidity requirements (Basel III)

It has been reported by many different sources that the “banks” aren’t lending and that this is stifling growth. Yet the message from the banks is that there is no demand from SMEs. Cases that have come to the attention of the Frost Group seem to show that there is no appetite from the banks to lend to any sector where there may be even a small element of risk. However, if you have bountiful security and can offer personal guarantees (asset backed), you may get some money as long as you can satisfy the banks’ computer based lending criteria.

The banks are certainly cutting their exposure to the property sector and are nervous about backing property schemes and are keen to hold on to/ increase capital in order to meet Basel III rules. Last year Blackstone bought a portfolio of property loans with a face value of £1.4bn from RBS at a 30% discount!

This, when taken in the context with the capital requirements of so many banks in Spain and Portugal, is almost laughable were it not so serious. Forget Basel III, think liquidity because of their property exposure or perhaps solvency as their balance sheets are stuffed full of overvalued empty residential and commercial properties.

Where property here is concerned, Legal & General have dipped their toe in the water providing (student landlord) Unite with a £121m debt facility and Schroders are apparently considering entering property lending. No doubt they will be very selective and have limits on their exposure which only goes some way of helping.

This is all well and good but the volume of funding is lacking and not only in the property sector. There are many “zombie” businesses out there and we know that (historically) the greatest number of failures occur coming out of recession rather than during one and so the trick for Insolvency Practitioners such as me is predicting when that will be. I have a wet finger in the air and ……