Martin Vander Weyer’s Any Other Business
It’s nonsense to accuse high street banks of failing to lend to businesses because the money they might have lent has been siphoned off for bonuses — that just isn’t how it works — and it’s good news that they have been announcing restored or increased profits this week. It’s also absurd to claim that George Osborne and Vince Cable should or could instruct them how to lend. And in any case, an optimist might say, the indicators are moving in the right direction: what with higher than expected growth in the second quarter, an uptick in manufacturing and a wave of investment in retail banking signalled by the opening of Metro Bank and the purchase of 318 Lloyds branches by Santander, the cycle seems to be turning exactly as it should. Businesses with decent prospects, large or small, new or old, will gradually find a warmer welcome from the banks as recovery gathers pace, while depositors’ (and taxpayers’) money is safeguarded by not lending it to wastrels and losers.
So far so good — as long as you’re not a double-dip doomster, which by nature I’m not. But the charge which really sticks against the banks is that, as the cycle has turned, they have treated business customers with the same brutal insensitivity that earned them such opprobrium in the recession of the early 1990s. It was then that the concept of ‘loyalty’ in banking was lost, and nothing seems to have been learned since: you might have kept your accounts with the same branch for 50 years and played golf with the manager for almost as long, but when head office tells him to stop lending to your sector, he’ll cripple your business without a word of apology.
The product of this unreformed mentality is a financial assault course for entrepreneurs. Consider the experience of my chum in the west London motor trade who makes occasional appearances in this column in his battered trilby and British Warm overcoat with a copy of Nuts in the pocket, and who has encountered most of the big banks and their trade-finance arms during the recent downturn. Trouble began, he says, when lenders decided, more or less in unison, that they would no longer finance secondhand car stocks — so ‘stocking’ facilities disappeared, many small dealerships went bust, and forecourt prices plunged — only to soar again a few months later when the more robust dealers managed to refinance themselves. My man, who had recently built a smart new garage with the banks’ approval, fell back on his overdraft but soon found that cancelled too, so had to raise new equity to survive. Meanwhile, in a separate (and profitable) car-leasing business, he found ‘the tap turned off’ for lease finance for the best part of a year, and when it was turned back on again a £750,000 limit at 1.8 per cent over base had turned into £300,000 at 4 per cent over. One bank charged him £2,000 to set up a new facility, then suspended it before a penny had been drawn and kept it that way for seven months.
Even the bank itself later admitted behaving badly on that one, but he reckons his experience has been typical, or even relatively benign, not just among motor traders but for every kind of small business that keeps the economy alive up and down the land. The message ministers should deliver to banks is not that they should lend indiscriminately or pay punitive taxes if they don’t, but (as Mervyn King has said) that they should pick their customers carefully, understand their challenges, then stick with them for the long haul. It’s called ‘relationship banking’ and it disappeared without trace a generation ago: time to send out a search party.
A tale of two retailers
The deaths of two notable shopkeepers last month highlighted very different cultural approaches to business. The flamboyant Sir Simon Hornby led WH Smith on a 1980s expansion spree which included Our Price and Virgin Megastore record shops, the Paperchase stationery chain, Do It All DIY superstores and the rival bookseller Waterstone’s. It was a strategy in tune with the times, but the new ventures cannibalised trade in core WH Smith outlets, and after Hornby’s time the whole glittering portfolio had to be dumped as profits fell and the share price tumbled. Bill Cockburn, a former Post Office boss, arrived in 1996 to tidy up. He found ‘rotten margins, too much stock and customer service that’s not good enough: apart from that it’s really terrific’. He also found that Smith’s dealt with 50 different suppliers of Christmas wrapping paper, and in due course he chopped 14,000 product lines.
Smith’s today is not so very different from the railway and high street bookstall chain that was the foundation of its fame, and if it stands as a parable of the British way of corporate empire-building, the Aldi discount supermarket chain, whose reclusive co-founder Theo Albrecht has also recently passed through the pearly checkout, is quintessentially German. Starting from their mother’s corner shop in the bombed-out ruins of postwar Essen, Theo and his brother Karl built a worldwide business with 8,000 stores, based on well- chosen merchandise sold at the lowest possible prices, a limited number of product lines, no-frills presentation, fierce cost control and military discipline, in Theo’s case learned in Rommel’s Afrika Korps. They rarely borrowed from or even talked to banks, they shunned the media, and they made themselves the richest family in Europe, ahead even of Ingvar Kamprad, the equally penny- pinching and secretive Swedish founder of IKEA. The continentals stick to their lasts, but I suspect the Brits have more fun.
Careful who you kidnap
The only dash of colour in Albrecht’s obituaries was the story of his kidnapping in 1971 by a Düsseldorf lawyer desperate to pay off gambling debts: Theo haggled over the ransom and later tried to claim it against tax. After that he was rarely glimpsed, but at least he lived to tell the tale — which is more than can be said for Teddy Wang, a miserly Hong Kong tycoon who was snatched in 1983. Having been ransomed and found (chilly but unharmed) in the fridge of a Kowloon apartment, Teddy berated his wife for overpaying. Seven years later he was taken a second time and his wife paid three times as much, but to no avail: he was never found, having probably been thrown into the sea in a weighted fishing net. I’m not sure what the moral of this little item is, except perhaps that frugal billionaires make uncongenial hostages.
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