Cantillon

Inside The World Of Business

Loans speak louder than words for small business

ARE THE banks lending to business or not? They may all say they are open for business, but the claims are not all that well supported by their own figures.

Ulster Bank yesterday said it has held SME and corporate customer numbers stable over the last year. Good for them. But keeping your customer numbers up is is not the same thing as lending to them. The more telling figure in that regard is that, after taking account of loan repayments and overdraft movements, RBS’s business lending, including Ulster Bank, at September 30th, 2009, totalled £154.3 billion, a decline of 6 per cent since the end of 2008.

Bank of Ireland sang a similar tune on Tuesday, claiming to be “very much open for business and committed to supporting our customers”. The bank pointed out that gross new lending to SMEs in the first six months was €1.5 billion, with overall SME overdraft/working capital facilities limits available to customers up 18 per cent on 2008 levels.

Once again, gross lending and facilities made available are not the same thing as lending. The interim accounts themselves paint a different picture, with loans under the “non-property SME and corporate” heading falling from €37 billion to €35 billion in the six months and accounting for 26 per cent of the total book as against 27 per cent in March

The banks are clearly in a dilemma. They need to repair their balance sheets and extending credit to small and medium business in the middle of the worst downturn in living memory is not what you would call a compatible activity.

In that regard, the amendments made to the Nama legislation this week are welcome. They empower the Minister to issue binding guidelines “regarding lending practices and procedures to facilitate the availability of credit to classes of borrowers or potential borrowers including small and medium-sized enterprises”. He can also issue guidelines on how lending decisions can be reviewed.

There is now a stick – if the Minister chooses to wield it – to go with the carrot of cheap ECB funds.

Wider-economy defence

CLONAKILTY SOLICITOR Ted Hallisey possibly achieved a first when the crowd gathered at the High Court for the Fleming group hearing applauded him. Hallisey was pointing out that suppliers, many of them tradesmen, would see their business threatened should it end up in liquidation or receivership. The worst of the impact would be felt at Bandon-based Fleming’s own back door in west Cork.

Saving companies via examinership means saving their jobs. A High Court ruling in a separate case means the impact on those in the wider economy must also be considered.

Examiner George Maloney of Baker Tilly Ryan Glennon was seeking the court’s approval for an arrangement that will see the group emerge as a viable business from protection.

When it does, a large part of its contracting and building systems operations will be in the hands of a new, as yet unnamed, investor behind a company called Donban. The person’s – or possibly persons’ – shares have been vested in another solicitor, Veronica Collins, in trust, and whoever it is is not connected with the Fleming family. It is understood that they are from Cork and, given that they are putting up €3.6 million, whoever it is has resources.

While there’s nothing in the law to suggest that an unnamed investor cannot take part in a scheme of arrangement, once creditors approve, it will be interesting to see how Justice Brian McGovern deals with that question.

Equally, for future reference at least, it will be interesting to see how much weight he gives to the wider economy argument.

Smart move by Digiweb

THE ANNOUNCEMENT that Louth-based web hosting group Digiweb will take over Smart Telecom is welcome on two fronts. It will save jobs and could be good for competition in this marketplace. Smart had other suitors but this deal is arguably the best for consumers. It brings together two small players in the telephony and broadband space, creating a meaningful entity.

Smart has been a basket case for years. Founder Oisín Fanning had grandiose plans for it to take on Eircom. He spent big to unbundle the infamous local loop, hired an expensive sales team to sell door to door and placed a big bet on winning a 3G mobile phone licence.

Eircom cleverly used all the tools at its disposal to frustrate Smart’s growth strategy to the point where it just collapsed. In the end, Smart’s customers were disconnected by Eircom when it failed to pay its bills and the game was up for Fanning.

Cavan businessman Brendan Murtagh had backed Fanning’s growth plan and stepped into the breach when Smart collapsed. To his credit, many of the creditors had their bills settled.

Unfortunately for Murtagh, the new Smart Telecom also had a huge appetite for cash. Bondholders in the United States are owed about €70 million.

Digiweb is a niche operator, working largely in web hosting. Latest accounts indicate it is lossmaking. Acquiring Smart gives it access to the company’s unbundled exchanges and infrastructure. Smart also has good corporate and government contracts.

Both companies are said to be Ebitda positive, which is a useful starting point. But a lot of work remains if they are to compete successfully with Eircom, Vodafone, BT and UPC Ireland. Hopefully for Smart this will prove to be a case of third time lucky.

Next Week

The Bill creating the National Asset Management Agency moves on to the Seanad having cleared the Dáil earlier this week.

There will also come further indications of the current health of the economy, with figures from the Central Statistics Office on both inflation and retail sales.#

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