GFC over and not forgotten or forgotten and not over?
14 April
Sean Russo
AN ECONOMIST with a sense of humour seems to be rare in my experience so I took great delight in watching a presentation by Bill Evans of Westpac recently. He observed that the public perception of bankers has become so bad that where he once described himself as a banker when he filled in his customs and immigration forms, Bill now owns up to being an economist!
In among some very pertinent observations about the hangover we might suffer after over imbibing on stimulus and how the restrictions on bankers and their balance sheets are yet to really bite into the economy he described a conversation with a customer who was feeling very good about the world’s economic prospects and the value of the lessons learned in recent times. “Bill,” said the customer, “the GFC is over but it’s not forgotten”. Bill’s response: “Sorry to disagree but I actually think it’s forgotten but it’s not over!”
Interestingly my impression was that most of the audience, while appreciating Bill’s wit, didn’t share his sentiment and this was at Euromoney’s 2nd Annual Distressed Investing and Financial Restructuring Australia Conference where one might expect everyone would be relishing a less optimistic view. For me that response from the audience only seemed to reinforce the importance of the analysis being offered.
You only have to look to the number of intuitional placements already undertaken where the sole home for funds raised was the vaults of a once friendly banker to know that the pressure a bank feels gets passed down the line pretty quickly
Such has been the recent euphoria in markets – think Macarthur Coal – that most people not only want to believe, but do believe, the GFC is indeed over and we are all much wiser for the experience. As I heard it what we were being told was that the medium term impact of the GFC on banks here and around the world is just starting and it’s starting just as governments draw breath and start to think how they get the stimulus genie back in the bottle.
You only have to look to the number of intuitional placements already undertaken (at massive expense to the average punter) where the sole home for funds raised was the vaults of a once friendly banker to know that the pressure a bank feels gets passed down the line pretty quickly. And it’s not over, look around and there are still plenty of companies focusing on debt reduction strategies. Gerard Lighting is going public after four generations of being family owned and the money raised is all going to pay off debt. From where I sit the only synergy from merging Channel 7 and WesTrac seems to be to give comfort to those who fund WesTrac. To my uneducated eye it doesn’t even seem to be in the best interests of Mr Stokes if he’s not under significant pressure to refinance WesTrac.
Did those companies, both with a very long term track record of generating wealth for their owners, have a “come to Jesus” moment with their bankers/financiers during the GFC and it was made clear to them they would have to refinance as soon as the dust settled? Or did the bankers/financiers just behave so appallingly at the moment the client needed them to dig deep (after years of paying interest and fees) that the owners vowed they would never again be so beholden to bankers who seemed to be dissolving before their eyes. What went on behind closed doors we will never know but these are two of the better private businesses in Australia making a conscious decision to deleverage.
What worries me is what is going on inside the companies that don’t have a distant cousin to marry (assuming you get the bride-price right for the profile fund managers), or a very solid industry franchise that they can float. What pressure are they under, from their under-pressure bankers? What is that doing to their own forward planning and confidence in their business? What short term decisions are being made at the expense of long term value in an effort to get bankers off their back? Or simply, what’s happening in companies who believe that their survival to date is a confirmation of the strength of their strategy (or non-strategy) when it comes to managing commodity and currency risk and are they still ignoring the on-going risks?
For many the bounce in commodities (exporters) and the Aussie (importers) was so sharp that sloth was rewarded. If the markets roll over again we may not be able to rely on the same response from governments and bankers will be significantly less flexible.
They say money makes the world go around but money repaid to a bank that isn’t of a mind, or able, to lend it back out doesn’t actually fit in that old song. Please don’t misunderstand me. I think the responses by WesTrac and Gerard are logical, given my view of the likely pressures they have been under. If you consider the long term success of their owners it’s probably reasonable to consider their actions as a sound response to the broader market circumstances. I suggest these companies are two examples of entities who are saying the GFC is not over AND it’s not forgotten.