Lloyds Banking Share Discussion Threads

[crossing_the_rubicon] 31/3/2020 13:57

"smartie631 Mar '20 - 13:38 - 8499 of 8502
It travels with a visa and 2 suitcases. It has a little moustache and wears a deckchair top"

Angela Merkel?

[crossing_the_rubicon] 31/3/2020 13:56

"ignoble31 Mar '20 - 13:35 - 8497 of 8501
It is beyond me how the hell it appears tho be in every Country in the World so very quickly...How the hell is it travelling..."


Global travel. Interconnecting flights,overlays at hub airports..A viruses paradise.

"Understand coughs and sneezes but how else for it to get to these Countries so quickly. China to Ecuador..."


China to italy - 350,000 Chinese live/work in Northern italy.
Large Chinese communities globally.

Chinese New Year 5 million Chinese went on their travels!

Easy to see how this spread imo.

[minerve 2] 31/3/2020 13:55

Utricky, sat there in his relative wealth, lambasting TB sufferers, completely ignorant of his privileged position. Of course, his relative wealth was all down to him. LOL

Nothing to do with being born in the UK etc.. etc..

[alphorn] 31/3/2020 13:52

Ut - so what is your best guess as to outcome, from that list, or another proposition?

fwiw, I would expect pushing out the time horizon. However nothing will be said IMO until BJ finds a way to sell it.

[minerve 2] 31/3/2020 13:50

Pierre Einstein Oreilly

I think for you a quote is in order....

"So convenient a thing it is to be a reasonable creature, since it enables one to find or make reason for everything one has a mind to do." - Benjamin Franklin

In your case it is about not wanting to change your habits and routines for climate change. ;)

[utrickytrees] 31/3/2020 13:47

The EU have put themselves on a virtuous pedestal with their rules & standards how far has that got them, they've cant protect themselves from Chinas appalling trade in bush tucker & its consequences, the EU are redundant now more so than ever.

[montyhedge] 31/3/2020 13:46

I'm convinced the dividend will be hit on the head. BOE will probably tell them to preserve cash.

[sikhthetech] 31/3/2020 13:44

Coronavirus: UK mortgage market goes into lockdown

[alphorn] 31/3/2020 13:43

Ut - What does that mean in this context?

[maxk] 31/3/2020 13:42

By email. Common sense when you think about it..Why have a stomach upset when you can engineer a full blown heart attack?




By chance and then a modicum of success, I ended up with a career helping companies going through times of change, needing a new strategy, or in crisis. I’ve worked in hospitality, wholesale, IT and manufacturing, and in reality the issues are all the same, albeit with different causes.

I have posted quite a bit that the government and the media don’t understand what is happening to the British economy as a result of the coronavirus and their reaction to it. My fear is by the time they do and then get their act together it will be too late for tens of thousands of companies and millions of jobs, leading to a permanent reduction of UK productive capacity, especially among smaller and medium sized enterprises (SMEs). Larger firms may be taken over by foreign multinationals and stripped. The armchair capitalist ideologues who think the current owners and enterprises will be wiped out and free up capacity simply don’t understand that skills and capital, once lost, take a very long time to rebuild and is for many it is permanent. Furthermore, the capital destruction hits the banks and pension funds, damaging everybody, and will lead to suicides, marriage break ups and all the other social calamities, as well as far higher benefits bills for the tax payer. Such ideologues are really as sociopathic as XR fanatics and insane Marxists.

Furthermore, it’s stunning how few people understand how businesses really work, and certainly few politicians, academics or the general public, even most company workers.

Some Basics

Business is about profit, right? Wrong. It’s about cash flow. Profit is an accountant’s term and of only secondary importance, and I would argue of little importance in a crisis like today. It’s about cash coming into a business from sales and rent, and going out in payments to suppliers, employees, in rents, to the taxman and a hundred others. If everybody was paid when they made the sale, profit would be closer aligned with cash flow, but it isn’t. Customers want credit, the bigger they are the more they want – supermarkets historically 75 days plus – their customers buy their products and pay them for it many weeks before they pay the manufacturers and farmers, so in effect supermarkets have NEGATIVE working capital, as do many other retailers. In effect they are financing their businesses on the credit of their suppliers.

Now most companies get credit from their suppliers, depending on their size, length of trading and credit rating, but few will get anything like 75 days, 30-45 days is fairly general, but many smaller ones will get far less, if any. Such companies need POSITIVE working capital, ie cash in the bank or some form of debtor finance from the bank (which costs) to finance the business. Many/most companies will in the latter camp.

So working capital is the difference between debtor credit given and credit taken from suppliers. Little credit can be taken from employees (1 week to perhaps 3), perhaps several months from the tax man or bank or landlord (but often not if you pay in advance). Furthermore, a company has to hold stock, whether raw materials, finished goods or part finished product (work in progress). Depending on the nature of your business, this can be weeks or months of cash flow even, as your customers expect product to be available when they want it. Supermarkets and retailers will not commit to forecast sales or even sign contracts which places all the forecast production risk on the manufacturer. Heaven help a business that is out of stock when a supermarket wants it. I know of cases when companies have been fined by the supermarkets for this – pay up or be delisted. Hence, most suppliers carry too much stock, that must be financed and might not be needed and be wasted.

So that’s your cash flow. Profit is the surplus of sales value over cost value in a period. You can seemingly make/declare a profit while not being paid for the sales – this is where bad debt induced company collapses come from. Furthermore, the accountants say you should depreciate the value of your assets, whether buildings, stock and debtors (if getting old), IT equipment etc. This is not a cash cost – you’ve already laid out the cash to buy or make these things, it’s simply a measure to try to keep profit becoming too far behind cash flow. Of course, a business that sells its product for less than it costs will eventually go bankrupt as its credit and bank financing facilities become maxed out, but in the meantime it can go on being seemingly profitable. Furthermore, a business that makes good profits can go bust if its suppliers stop paying it and it cannot fund the working capital required any longer – this is what happens when something happens to bankrupt its customers or at least stop them paying their bills.

So that’s cash flow 101. Many here may know that, but it’s critical for understanding what is happening now in the British economy and will get far worse if the government cannot get its act together in the right way because ultimately the state has created this crisis by its inaction and then its panicky overreaction, and it is the insurer of last resort. If it fails in its job, it will see so many people put on to benefits and such a collapse in tax revenue that the state will in effect be bankrupt and well on the road to Venezuela and Zimbabwe.

The Current Economic Heart Attack

If the normal economy was encouraged to keep working while making sensible changes due to the virus there would be a reduction in sales and cash flow, but not massive or instant. Most businesses would have been impacted a bit but in the way they would be in a recession. Some over extended companies would go under, but it would not be material for the economy as a whole – perhaps a recession.

Coronavirus clearly crippled many airlines and associated businesses, and finished off the weakest like Flybe that were already over extended and poorly run. The airline business is highly risky and cyclical, companies regularly go under, but because they rarely own their own planes (finance houses do), their most profitable parts quickly get absorbed by competitors. Neither are they critical to the economy in terms of employment – in a way they are the cherry on the economic cake. Their loss is a tragedy for those affected, but not a disaster for the economy generally. Their collapse did not trigger the current economic heart attack – the government did.

How did the government trigger the current economic heart attack? The economy is already very unfit – too much government and private debt, the government is still spending far more than it takes in tax due to an over large and unproductive public sector and the costs of the benefits class and growing pensioner demographic. It’s not surprising that it is in no condition to brush aside the shock of even a mild pandemic – it’s a heart attack waiting to happen.

So how did the government turn a shock into a heart attack?

Boris, perhaps unthinkingly, told people not to go to pubs, restaurants, cafes and non-food shops for the foreseeable. Most saw 50% drops in sales overnight and over the following days further rapid declines in sales. These sort of businesses have high fixed costs irrespective of how much sales they make (staff have to be paid to open the store, rents, rates, utilities) and were instantly rendered unprofitable. They also had to face paying the bills for goods they had sold the previous month – remember negative working capital? – but had no new cash coming in to pay those bills now due. If they could not pay, suppliers would not advance credit for new purchases which means those stores have nothing to sell anyway the following months so they are gone, out of business and their suppliers suddenly facing bad debts. If those suppliers have enough bad debts, say many of them, those suppliers’ ability to keep trading is also imperilled and many might follow their customers into bankruptcy and then so on. A financial pandemic takes hold, spreading exponentially through the economy until it ultimately brings down the banks.

If the hospitality industry were not so large it might be horrible but containable, but it isn’t. It’s the third biggest employer in the economy (3 million jobs) and it was suddenly shut down without notice. A lot of suppliers are dependent on it as well. Sadly, many of the larger businesses have been bought by Private Equity companies and carry lots of debt (encouraged by ultra low interest rates and QE), while many independent businesses are like all small businesses and lack deep reserves to ride out trouble.

So, in effect one of the largest sectors of the British economy was killed over night. Each company planned how it might survive but didn’t know how long the shut down might last, so they laid off staff in huge numbers to eke out the cash reserves they have so there might be something left to reopen one day. They also stopped paying their bills to anybody, in many cases because they could not because there was little money in the till, so their suppliers were suddenly facing huge bad debts and began to reduce their costs dramatically stop paying bills and so on. Essentially, if you imagine the economy as a body with a cardiac blood flow system, an important heart valve had blocked and the blood flow with it. The other valves might be okay for now, but you need all of them and without blood flow the body dies, very quickly. So even companies with good cash reserves saw 100% drops in sales and no prospect of reopening, so they started doing what the weaker ones did. Strong or weak, it matters little in these situations – everyone goes to the wall, albeit at different speeds.

The government compounded this a few days later with a more general shut down, and in the meantime employees faced with lay off stopped spending as did consumers generally in the panic, so other sectors started to see precipitous declines and the cash flow freeze rippled out. The heart attack become general and total economic disaster, compounded by foolish government fiscal policies over the last 12 years, started to unfold.

The Government Response

I genuinely don’t believe the government understood much or any of this, and it is only now beginning to dimly comprehend what is happening. I suspect the true panic will hit in a couple of months. It has announced a number of business support schemes, none of which are yet operational:

a. £330 bn of loans to business to keep going. The problem is that the loan criteria, let alone the time to access, means that it won’t help most businesses. It furthermore does not understand business psychology – business owners and directors will not borrow more money unless they know when they can start trading again to pay it back. Only the reckless will do so.

b. The talk of grants for small business of up to £10k, help to pay rents and a 12month cancelling of business rates. The latter will help but there is total confusion about the others – HMRC and Rating Office staff even a few days later didn’t know anything about them. Hopefully, this will dissipate soon but again unless it’s quick many businesses will give up because they are running out of cash as they try to pay their most important costs – the people they need to keep on board to ever hope to reopen. Sadly, HMRC’s record of being rapid and effective is abysmal.

c. The 80% of staff being furloughed rather than laid off. In reality, ‘furloughing’ is not a concept recognised in UK Employment Law and technically any employer doing it now, and thousands already are, is breaching employee law and liable to being sued. Assuming this is sorted out, companies will still not be able to apply until late April (when the portal is ready if on time) and must in the meantime keep their employees on the books and keep paying them 80%of the salaries, which means that many companies are now having to change their plans already made and communicated to employees. Key questions remain unclear:

a. Is the 80% net or gross of tax?

b. When will applications start to be paid out (the Rural Payments Agency fiasco of several years ago took up to 2 years to pay out, bankrupting many farmers in the waiting process), and dozens more.

The key risk is that by the time government have sorted this all out, many companies will have run out of cash to pay the 80% and will close down for good. Many companies had already started survival plans cutting their costs by 50%+, so the extra 30% pay out in the meantime might kill them off while they would otherwise survive because the state does not pay out for many months.

So, businesses are being placed in a terrible dilemma – act more radically now without government support, or act less radically and assume the government promises materialise in good time. Most businesses want to protect their staff and will for now act on the basis of the government scheme, but it is does not start to deliver in scale by May, they will revert to Plan A, but for many it will be sadly too late.

Would you have confidence in the state to deliver or not? They caused this. They still don’t understand it. They don’t understand the business cash flow cycle. They cannot implement their plans quickly or effectively based on track record. So what do you do to survive? It’s a breath holding under water endurance test, but you don’t know how long it lasts – it could be hours.

It’s quite unbelievable. There are no good ways out of this, and it could have been so much better handled. Modern economies are far more fragile than they were in the 1930s because they are far more interdependent, leveraged and efficient. And we have semi blind clowns steering them.

[utrickytrees] 31/3/2020 13:40

More accountability Alphorn,

[smartie6] 31/3/2020 13:38

It travels with a visa and 2 suitcases. It has a little moustache and wears a deckchair top.

[alphorn] 31/3/2020 13:37

CLOs - remind you of anything?

Banks help asset managers package risky loans into investment products. They are sitting on $bn's of debt linked to companies most exposed to an economic downturn.

Lenders on both sides of the Atlantic have upwards of 100 open credit lines to vehicles known as collateralised loan obligations............... (Full story on FT etc).

[asdb9] 31/3/2020 13:37

I wasnt replying to yourself it was directed at elbe

[patientcapital] 31/3/2020 13:35

Could it be that leaving gets merged into the covid fall out as this is presenting something of a trial run for real. Assuming it is survivable, it has to be, then anything else will seem something of a doddle.

[ignoble] 31/3/2020 13:35

It is beyond me how the hell it appears tho be in every Country in the World so very quickly...
How the hell is it travelling...

Understand coughs and sneezes but how else for it to get to these Countries so quickly
China to Ecuador...

[diku] 31/3/2020 13:32

Maybe the Brexit crash has been brought forward in collaboration with Coronavirus...2 in one...buy one get one free...

[crossing_the_rubicon] 31/3/2020 13:31

"ASDB931 Mar '20 - 12:56 - 298594 of 298604
But aspirin and paracetamol is not dangerous if you double, treble, quadruple the dose. Chloroquine is dangerous beyond 2x dose"


Indeed. Typo error myside...Edited. Should read 2gm,not mg.

It's far far easier to therefore overdose Chloroquine than Paracetamol, Aspirin and co so I was refuting Mr Elbee's comment...

[alphorn] 31/3/2020 13:26

So what is your answer Ut?

[utrickytrees] 31/3/2020 13:24

BS Alphorn, the ethos of Brexit has never been more relevant (imo).

[utrickytrees] 31/3/2020 13:22

He isn't going to help you atm careful.

[crossing_the_rubicon] 31/3/2020 13:20

@Mitchy,

I'd be more concerned about:

What's going on in Ecuador?
Summer pause theory shot to pieces?

Ecuador,Guayaquil 80-90 degrees, humidity 67-75%

[careful] 31/3/2020 13:19

Never tempt fate, tricky.
So far you have been lucky.
Never say you are one of a decreasing number of heroes.
Someone up there is listening.

[alphorn] 31/3/2020 13:17

Moving away from the world symposium of scientific experts to the trigger point for go/no go Brexit which is now only three months away.

- will a trade deal surface like a phoenix?
- will the lunatic fringe here get their way and WTO it is?
- will the end date be pushed out 1 - 2 years?

What is likely in this very short time period?

Coronavirus and its economic impact awaits; a global recession at best awaits; Brexit has been forgotten.