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Thread: Bank stocks

  1. #71
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    Quote Originally Posted by Tomtom View Post
    Apologies, this article contains a link to the legislation.
    "While both Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr have urged banks to lend courageously to businesses under this scheme (the Business Finance Guarantee Scheme, through which taxpayers are underwriting 80% of individual bank loans to eligible SMEs), banks will ultimately lend according to their own criteria and within their own risk appetites."

    "Banks can also only lend to businesses under the scheme if those businesses have exhausted other options with their banks."

    If those quotes are right, then no wonder the banks are hesitant to lend to small business. Banks are still expected to lend according to their own risk appetites (understandable). But the 'Business Finance Guarantee Scheme' will only kick in if all other finance options have been turned down. So the finance scheme can only be offered to those deals the bank has rejected. And since the bank has rejected such loans, they won't be happy with taking a 20% risk in a loan they have determined is no good. That means the 'Business Finance Guarantee Scheme' cannot work - no loan can qualify. Or have I got that wrong?

    SNOOPY
    Last edited by Snoopy; 30-04-2020 at 07:39 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  2. #72
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    Seems reasonable. It's quite alarming to me this is even being considered.

    I'm of the view that stimulating demand will ultimately save businesses and the best way to do that is injecting cash into consumers accounts.
    Last edited by Tomtom; 30-04-2020 at 08:04 PM.

  3. #73
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    Quote Originally Posted by Tomtom View Post
    Seems reasonable. It's quite alarming to me this is even being considered.

    I'm of the view that stimulating demand will ultimately save businesses and the best way to do that is injecting cash into consumers accounts.
    What will a change of Govt do to these ?

    - turn them into taxable grants (as the loans should have been in first place) perhaps spread over forward years ?
    - make them interest free for 5 years perhaps ?

    I really cant see many businesses on the bones of it's ar*e taking these loans up being in any position to repay
    these fully any time in the next 2-3 years, unless they get a really really good tail wind...

  4. #74
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    Quote Originally Posted by Tomtom View Post
    Seems reasonable. It's quite alarming to me this is even being considered.

    I'm of the view that stimulating demand will ultimately save businesses and the best way to do that is injecting cash into consumers accounts.
    What will a change of Govt do to these ?

    - turn them into taxable grants (as the loans should have been in first place) perhaps spread over forward years ?
    - make them interest free for 5 years perhaps ?

    I really cant see many businesses on the bones of it's ar*e taking these loans up being in any position to repay
    these fully any time in the next 2-3 years, unless they get a really really good tail wind...

    As per usual, the Labor Govt still haven't thought things through to ensure these are 'working for intended purpose'

    - What use is throwing a Govt Loan to a Business already sitting on the edge fighting to claw back ?
    - What use is increasing Small Asset write-off limits to bulk of businesses who wont be in position to buy those assets up to $5k ?
    - What use is tinkering with winding 2021 losses backwards - when most businesses wont have prior year profits undistributed
    (as shareholder salaries) subject to tax to see any prior year tax refund ?

    Most Businesses need Cash to pay Overheads etc, not an additional hefty repayable Loan Exposure & particularly not to Robertson & Nash's Department of Taxation ..

    On another score - what has Nash actually done (if anything) for SME's & Small Business - he is the Minister for Small Business I believe
    and appears to be mostly lost in action ..
    Last edited by nztx; 01-05-2020 at 07:07 PM.

  5. #75
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    Quote Originally Posted by Snoopy View Post
    "While both Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr have urged banks to lend courageously to businesses under this scheme (the Business Finance Guarantee Scheme, through which taxpayers are underwriting 80% of individual bank loans to eligible SMEs), banks will ultimately lend according to their own criteria and within their own risk appetites."

    "Banks can also only lend to businesses under the scheme if those businesses have exhausted other options with their banks."

    If those quotes are right, then no wonder the banks are hesitant to lend to small business. Banks are still expected to lend according to their own risk appetites (understandable). But the 'Business Finance Guarantee Scheme' will only kick in if all other finance options have been turned down. So the finance scheme can only be offered to those deals the bank has rejected. And since the bank has rejected such loans, they won't be happy with taking a 20% risk in a loan they have determined is no good. That means the 'Business Finance Guarantee Scheme' cannot work - no loan can qualify. Or have I got that wrong?

    SNOOPY
    There are probably loans that could qualify, but whether they are a meaningful proportion of lending is a different issue, and my gut feeling is that the potentially eligible market isn't anywhere near the scheme's ceiling.

    If you had clarity that a borrower had a 75% chance of replaying the loan and was to pay a 10% margin (assuming for simplicity a 1-year loan with one payment at the end of the loan), the loan should be declined by normal bank processes. The payoff's are 1.1 * 75% + 0 * 30%. At 0.825 this is less than 1 and a bad risk to take on. The bank might lend on this if they were only exposed to 20% of the losses. The payoff's would become 1.1 * 75% + 0.8 * 25% = 1.025. With the guarantee the loan now has an expected margin of 2.5%.

    Even here, the loan is still risky because you don't know how many hurdles the government of the day is going to impose to collect on the guarantee. Is this about to set up a scenario similar to the pending court case between EQC and Tower? If the loan above's true probably of repayment was lower than 66.7% it still doesn't make sense. If the loan is anything close to the $500k ceiling, what is the risk profile if more bridging money is need before normal operations generate sufficient cashflow to repay loans? What if the customer is not in default but extensions mean the loan hasn't repaid within 3 years? What are the additional losses on existing loans if your recovery specialists are now focusing on ticking any government boxes on these loans?

  6. #76
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    I'm reminded of Frédéric Bastiats parable about broken windows where he illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.

    We are lending a lot of money to a lot of people to fix windows I suppose because...well we have to feel like we are doing something, don't we?

    "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end – To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
    Last edited by Tomtom; 01-05-2020 at 11:19 PM.

  7. #77
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    Quote Originally Posted by Tomtom View Post
    I'm reminded of Frédéric Bastiats parable about broken windows where he illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.

    We are lending a lot of money to a lot of people to fix windows I suppose because...well we have to feel like we are doing something, don't we?

    But Govt set the scene for those windows to get broken in the first place, through their tardiness in doing very little through January through best part of February, intently watching the distant horizon & many would guess sitting with heads in sand saying for weeks 'this wont happen to NZ' ...

    So why shouldn't Govt just be paying up for all those broken windows to get fixed & forget all thoughts of some further dumb ill-conceived Loan Scheme (probably only to give another large bunch Public Sector papershufflers further jobs for the next 5 years) and of which will likely only cause further grief down the track ?


    After all many Employees of affected employers sort of got a non repayable Loan didn't they ? Are the other bundle who got saddled by Govt with the privilege paying out 100% of subsidy received to workers for 'stay in the job but at home twiddling your fingers purposes because Govt decrees you must' any different ?
    Last edited by nztx; 02-05-2020 at 05:17 AM.

  8. #78
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    money supply in the USA apparenty greater in this last month than in all of 2008-09 and due to increase farther. DR Siegel say inflation will turn up due to the vast increase... how ever that hasnt happen in japan.. so we will see...different population dynamics and low oil will have an effect eventually.. there may be no way they can avoid another bull market that will over shot like the last one...another cycle of boom and bust but this time even faster and higher than the last one? history repeats its self. In 5 years time you wont even remember this 12 month period...

  9. #79
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    Know somebody who sacked an employee yesterday because the employee said because the subsidy was his and he didn’t have to work

    Told him on your bike son and I’ll repay the balance of ‘your’ subsidy to the government ..,,and hope the dole queue is not too long.
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  10. #80
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    Quote Originally Posted by winner69 View Post
    Know somebody who sacked an employee yesterday because the employee said because the subsidy was his and he didn’t have to work

    Told him on your bike son and I’ll repay the balance of ‘your’ subsidy to the government ..,,and hope the dole queue is not too long.
    They should have promoted him to manager - clearly has management potential.

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