Accredited lenders have so far provided £27.5bn of emergency loans to British companies during the COVID-19 crisis, according to UK Finance. In a 27 May statement, the industry body revealed that 650,000 firms had received loans via banks and other lenders from three government initiatives: the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme. Through the BBLS alone, lenders have distributed more than £18.4bn.
UK Finance CEO Stephen Jones said: “The banking and finance industry has a clear plan to help businesses get through these tough times. Lenders are providing an unprecedented level of support [through the loan schemes], and a further £20.5bn drawn under bank-arranged commercial paper facilities. Businesses can also access a wide package of support measures as part of the industry’s plan, including extended overdrafts, capital repayment holidays and asset-based finance.”
Jones stressed: “It’s important to remember that any lending provided under government-backed schemes is a debt, not a grant, and so firms should carefully consider their ability to repay before applying.”
The statement emerged one month after the Taxpayers’ Alliance criticised the speed at which UK COVID-19 business loans had been distributed. According to its research, by 22 April, the CBILS had issued 16,624 loans worth £2.8bn. Although Germany had issued fewer loans (13,000), their total value was much higher, at £7.4bn. Meanwhile, Switzerland had approved more than 100,000 loans worth £13.3bn. The Alliance cited complaints over the UK’s four- to six-week vetting process, compared to Switzerland’s 10-minute online application form.
While commercial paper (CP) forms a major plank of the UK’s business relief efforts amid the COVID-19 crisis, well-known large corporates are seeking alternative solutions, according to a 25 May Financial Times report. The piece namechecks Coca-Cola, PepsiCo, Pfizer, The Walt Disney Company and Philip Morris International as big-brand firms that are currently “paying off tens of billions of dollars of [CP] borrowing in favour of new longer-term facilities”.
The FT cites figures from business data provider Refinitiv showing that this year, more than 40 companies have raised a total $97bn in debt, partly to refinance CP: a record high approaching the $105bn borrowed across the whole of 2008 and 2009 at the height of the global financial crisis. Meanwhile, recent Federal Reserve figures show that CP issued by non-financial corporates has dropped to its lowest level for four years. Treasurers’ pivot towards other products has stemmed from CP market turmoil of March, when some investors refused to lend for maturities longer than five days.
Janney Montgomery Scott financial strategist Guy LeBas told the FT: “Overall, it is more efficient to finance for two to five years than it is to do so in the CP market. With the yield curve so low in absolute terms, from a treasurer’s standpoint, it is a lot safer to secure funding [elsewhere].”
Agri-foods firms will have a more streamlined supply chain as a result of the UK’s new external tariff regime, according to a customs expert. Unveiled on 19 May, the UK Global Tariff (UKGT) aims to “support the economy by making it easier and cheaper for businesses to import goods from overseas”, thereby providing a “simpler” system than the EU Common External Tariff (EU CET). In an assessment of the UKGT, Andrew Thurston – customs consultant at accountancy firm MHA MacIntyre Hudson – says that the new system improves upon the EU CET by: i) simplifying large parts of agri-food related tariffs, and ii) abolishing many seasonal tariff rates for foodstuffs.
Thurston explains: “The EU’s additional rates on foodstuffs such as bread, confectionery and dairy spreads require importers to submit products for laboratory testing in order to [test] four, key content parameters – starch/glucose, sucrose/invert sugar, milk fat and milk protein – which are then used to calculate the appropriate tariff rate. Failure to calculate the right level of, for example, milk fat, can leave a company with a very large customs debt. The proposed UK tariff replaces all this with single, value-based rate. There will be no need to determine a product’s content, avoiding the need to use a laboratory, which can charge hundreds of pounds for each test. These changes will minimise administrative burdens, increase efficiency and should ultimately reduce costs to the consumer.”
He adds: “The scaling back of seasonal rates is another bonus. The EU’s common external tariff puts great emphasis on seasonal rates for fruit and vegetables not grown in the UK – such as citrus fruits – in order to protect continental farmers. Under the new system, the UK will be able to take advantage of the world market for fruit without being tied to high rates in certain seasonal periods. The new tariff measures still aim to protect UK farmers, as seasonal rates on apples and pears and tariffs on beef and lamb are being maintained. This may be a precursor to a no-deal [Brexit] as it suggests competition against EU farmers.”
Should there be no further extension to the Brexit transition period, the UKGT will come into force on 1 January 2021.
Digital technology and responsible investing will “inevitably” be the Top Two global investment “megatrends” of the coming decade, according to Nigel Green – founder and CEO of financial advisory firm deVere Group. In an 18 May statement, Green pointed out: “The COVID-19 crisis has accelerated innovation and disruption and heightened expectations. The future has happened faster.”
He explained: “The digital revolution is taking place right now in a monumental way, with our daily lives becom[ing] ever more digitalised at a staggering speed. The rapid advancement of digital technologies is already fundamentally changing business models, institutions and society as a whole – and this trend is likely to pick up pace further as tech evolves.”
With that in mind, he noted: “The digital revolution means the potential for new and emerging businesses and industries is greater than ever before – and both retail and institutional investors will, naturally, be drawn to the massive growth and opportunities. Indeed, we can see the future economy already in global stock markets, which are being driven up primarily by tech-based firms.”
Turning to investment based around ESG concerns, Green said: “It’s been brought into sharp focus that today’s COVID-19 crisis could be overshadowed by tomorrow’s climate crisis. [COVID-19] has demonstrated the importance of having sustainable and diverse supply chains. It has also underscored that companies with strong corporate governance and good business practice are best positioned for the future. This has been evidenced by those investments with robust ESG credentials continuing to outperform throughout the recent bouts of stock market volatility.” As such, he stressed, the growth and opportunities stemming from that pattern of change “cannot be, and will not be, ignored by retail and institutional investors.”
Green added: “It’s often said when investing that ‘a trend is a friend’. A megatrend is likely, therefore, to be your best friend.”
Investment in the UK fintech sector has exploded by 500% over the past three years, according to a new report from global recruiter Robert Walters. Over the same period, the firm reveals, fintech sectors in the US and Europe have managed growth of only 170% and 133% respectively. Indeed, in the first quarter of 2020, London fintechs have whipped up almost as much backing ($114m) as they did in the whole of 2017 ($148m) – suggesting that this year will be particularly significant for the sector.
Robert Walters senior manager – technology (London) Tom Chambers said: “Fintechs were not initially seen as direct ‘competition’ to traditional banks, with their products and services differing vastly. However, over the past 12 to 18 months, we’ve seen fintechs apply for banking licenses – which means they can now expand their offering to include overdrafts, guarantee deposits and the ability to set up direct debits.”
Chambers noted that the UK government’s move to shake up traditional lending by allowing fintechs to be official loan providers for the COVID-19 bailout efforts has introduced fintech to the masses. He added: “As fintechs creep into traditional banking territory, and financial services continue to embed technology into their processes, the sectors stand to become indistinguishable in the next year.”
The report predicts that in 2020, the UK’s most popular fintech products and services will be: