A Good Year For Innovation In SME Finance

Source: Bank of England

As the headwind for UK banks stiffened today, we have news from MarketInvoice, the UK-based online invoice discounting platform, that it has enabled SMEs to raise £2 million against their invoices since February 2011, with £500,000 raised through the platform in August alone.

"Buyers" of each firm's invoices are institutional investors (such as asset managers and private investment funds) - who we know have plenty of cash in search of a home. They bid against each other on the platform to ensure some competition to provide cheaper funding. The types of deals done to date, and how the process works, are described here. In effect, this puts the traditional invoice discounting, or 'factoring', process online.

Of course, MarketInvoice is not alone in providing small businesses with alternatives to bank finance. Funding Circle, the peer-to-peer platform for small business lending, has also reported healthy interest. And Crowdcube facilitates equity investments.

So far, each of these new entrants has chosen to innovate around a specific funding instrument or process. No doubt other alternative providers, and further innovation, will emerge while the banks remain in complete disarray. Necessity, as they say, is the mother of invention.

Bank Bonuses, Dividends Impact The Economy

Source: Bank of England

Banks were recently warned by the Bank of England to cut bonuses and dividends ("discretionary distributions"), rather than to reduce lending, when faced with falling profits.

Interestingly, Angela Knight, chief executive of the British Bankers Association, welcomed the news. She is reported to have said, "This is the first statement I’ve seen from [UK] authorities that recognises that capital levels and regulatory changes ... can have an adverse impact on the economy.”

By implication, of course, this is also the first acknowledgement from UK banks that their bonuses and dividends will adversely impact on the economy, unless they are cut before lending shrinks.

Let's hope they continue to bear this in mind as their rate of lending continues to shrink...

Political Donations: New Disclosure Rules

Image from Good.is

Hat tip to Zero Hedge.

Let Go Of The Rising Balloon

I recall being told the terrible story of some military personnel grabbing the ties on a hot air balloon that was threatening to leave the ground prematurely, only to be hauled into the air. One by one they faced the decision whether to drop off as it continued to rise, and some held on too long... I'm tempted to search for an accompanying YouTube clip. But you get the point, and Winnie the Pooh provides a more fitting illustration for the Eurozone politicians who face the same dilemma.

The latest proposal is that a €440bn European Financial Stability Fund be somehow swelled to €1 trillion, which in turn would be leveraged to €4 trillion using "distressed sovereign debt, and equity in distressed banks exposed to the very same sovereigns, as security".

That this is the equivalent of a rising balloon is not in doubt. Nor is it a surprise. Gillian Tett explained two years ago why sovereign debt could be "the new subprime". And the IMF's report on the subprime crisis has explained the problem with allowing the same $1 trillion in assets to be rehypothecated or 'churned' to 'secure' $4 trillion in borrowing by US banks in the lead up to the Lehman collapse... Noting the "surreal" circularity involved in the latest EU proposal, Satyajit Das also recently pointed out that the proposed structure is also flawed because it fails to recognise that the underlying bonds could lose 75% of their face value.

Martin Woolf discusses this process in terms of "How to keep the euro on the road" but I prefer the rising balloon analogy - as did Danny, the dealer in Withnail and I, when referring to the end of the '60s:

"Politics, man. If you're hanging onto a rising balloon, you're presented with a difficult decision - let go before it's too late or hang on and keep getting higher, posing the question: how long can you keep a grip on the rope? They're selling hippie wigs in Woolworths, man. The greatest decade in the history of mankind is over. And as Presuming Ed here has so consistently pointed out, we have failed to paint it black."

Time to let go. Greece first.

All Your Problems Solved - For Life

A new TV game show promises to solve all your problems for life - on the single toss of a coin.

A spokesperson for independent production company CoinToss Productions confirmed the show's ultimate promise, but refused to give further details. "We're still in stealth mode," she said, "and we don't know how this got out. But all will be explained in the launch."

Industry analysts were enthusiastic about the show's potential. One pundit, who preferred not to be named, suggested "this really captures the zeitgeist." Asked what he meant, he said, "it's a German word, and I'm not entirely sure what it means. But what's certain is this country is on its knees and the majority of people are employed by the government or receiving some kind of benefit. The entrepreneurial spirit, the get-up-and-go that created whole countries like America and Australia and... and... Fiji has been replaced by an entitlement culture the pinnacle of which is knocking a hole in a shop window to grab a telly, followed by a cheap lager and a bag of crisps down the local as a warm-up for the public sector strikes. I mean, a show like this will appeal to most people in the UK, of course, because it's just about basic human greed at the end of the day, isn't it? But it'll appeal particularly to those who expect it all on a plate and can't be bothered to take control of their own lives."

Sources say the show, which has the working title "Coin Toss", should be out in time for Christmas.



Image from Blackberrysites.