As I See It
Now the bigger boys are finding bank loans tough to access
A slump in business lending to companies came as something of a surprise after all the recent indications from the British Bankers Association, the umbrella group, that more money was being made available.
Even more surprising, perhaps, was that larger firms, rather than SMEs, were the ones to suffer.
Overall lending to non-financial firms fell by £5.5 billion in June, marking the sharpest fall since records began in May 2011. This followed a rise of £818 million in May.
The British Chambers of Commerce said the figures were a concern and put a question mark over the ability of business to raise the investment required from the banks. Of course, the banks will argue that they are responding to demand and these figures suggest companies have become a little more cautious.
There is one other explanation: that, in spite of the availability of cheap money, more companies – particularly larger companies – have given up on bank lending and are looking elsewhere for capital, mainly the equity and bond markets.
Companies are also cash-rich, having accumulated funds during the post-crash period which they are now either returning to shareholders or using to fund growth.
Zurich Insurance Group, for instance, is considering a £5 billion offer for RSA and says it will be “solely” in cash.
This is a shift from last year when stock was more commonly used. However, with all the FTSE100’s gains lost this year as a result of volatility around Greece and China, companies may have reverted to non-stock deals.
Certainly there is no sign of a downturn in the M&A market. The third quarter has begun with the highest ever value of M&A transactions announced in any July since 2008, deals valued at £207 billion were 20.9% higher than July 2014.
On average , the monthly value of M&A during 2015 has been £192bn; if M&A continues at this pace 2015 will surpass 2014’s post-crisis high and even be on the verge of eclipsing 2007’s peak of £2.37 trillion. Already in July, five of this year’s global top deals have made it into the top 20.