The last man standing

It occurs to me, writes Peter Matza, that many treasurers will have taken on a role during the economic crisis of the past 18 months for which they may be ‘the last man standing’.

They have become the interpreters for many of the ups and downs of the credit crisis, both in an academic sense and formally in how the markets have and will continue to impact their businesses and organisations. The difficulty treasurers will have is not just with the meanings of technical terms, nor even explaining the impact of various events; it seems to me that the real issue is addressing the level of financial understanding in the wider business and political community.

As readers who have read the annual reports of Berkshire Hathaway, Warren Buffett’s holding company, will know, his commitment to plain speaking in plain English serves as a vital primer even for complex issues such as the meaning and value of insurance premiums which could easily be followed by all involved in reporting or discussing financial matters.

To take a non treasury example, recent media coverage concerning the implications of a cut in BoE base rates as if they represent the one and only measure of interest cost was a clear distortion both of the actual issues being referenced (the cost of retail mortgages) and the overall cost of borrowing. More subtle coverage noted that although there would be a positive impact on current base rate linked and other variable rate mortgages, many current structures if offered at all, are at much higher margins making the ‘base rate’ issue less important. There was virtually no coverage at all however about the cost of borrowing money over a 7 year term (the average length of a UK mortgage), 10 years or longer time horizon. The Government’s fervent wish of 18 months ago to see more long-term fixed rate mortgages seems to have got lost somewhere.

This brings us to something more politically serious: will the government be able to reconcile its intention to act as a passive, ‘financial’ investor in the high street banks where they have invested public funds, against a political imperative to see the SME sector (the traditional job creating sector) funded through the recession. Moreover are we confident that the Government understands how this sector is financed with particular regard to the costs and margins levied by lenders and investors? The treasurer’s role in understanding this dynamic and being able to interpret its impact will be critical in UK businesses of all sizes over the coming months.

By Peter Matza