Switzerland

Author

Date

10th January 2017

Switzerland is widely recognised as having one of the most independent, prosperous and stable economies in the world, which is why for decades nervous investors have regarded the country as a safe haven for their money in times of global turbulence.

In 2014, when Russia was facing huge problems and money was pouring into Switzerland chasing up the local currency, the Swiss National Bank surprised the world by dropping the domestic Base Rate to minus 0.25% in a determined effort to weaken the value of the Swiss Franc because it was damaging the country’s export effort. Today, and for the same reason, Switzerland’s Base Rate stands at minus 0.75%.

Although the Swiss economy has had two relatively sluggish years in 2015-16, it is expected to grow by around 1.5% in 2017. Yet Bond yields remain at minus 0.19%, which hardly provides rich pickings for local yield-hungry investors who, per capita, are reckoned to be the world’s wealthiest.

Back in the UK, we have a parallel situation regarding low fixed interest returns and following our decision to leave the EU – an organisation with which, of course, Switzerland has never been integrated – we are moving to a position where we will have even more in common.

The one crucial difference from an investor’s point of view is that the UK has developed some attractive alternative asset forms, such as P2P loans the demand for which is booming. Yields of 6% and more are commonplace which, bearing in mind the relative security provided by the larger platforms through provision funds or, in ArchOver’s case, credit insurance, represents something approaching a decent return.

No one is pretending that P2P loans are risk free – of course capital can be at risk – but many individuals and institutions have decided that, given all the information available, the transparency and free entry for investors to participate, the overall odds are worth accepting.

As ever, investment timing is vitally important. Sterling, which took such a battering following the Brexit vote, is slowly recovering and is expected to rise in value against currencies like the Swiss Franc. In the meantime, the lower value of our currency is doing wonders for our exporters and the UK economy is now expected to grow. All things considered, and bearing in mind that low interest rates look like being part of the financial landscape for the foreseeable future, now would seem to be a very good time to invest in UK PLC – leave it too late and you could ‘miss the bus’.

New Ideas, Polar Bears and Praise for the FCA’s Approach to P2P Lending

Author

Angus Dent

Date

9th August 2016

Thought provoking piece in CAPX by Jamie Whyte challenging the new “intellectual protectionists” who, unless we are careful will stifle change and growth, make everything cuddly and bankrupt us in the process. If we accept only the perceived wisdom of today and make it an offence to suggest anything else, yes some supposedly clever people really have suggested that we’ll stagnate.

Contrast the approach of making denial of climate change a criminal offence, with the active approach taken by the FCA to P2P lending as reported in Business Insider. The ingenuity of a lot of people is being encouraged and a sector carved out of the banking industry, which is and will continue, there’s an awfully long way to go yet, to provide better service to consumers. Of course the real contrast for the FinTech sector is not with the polar bear, but between the US and the UK. The UK has the white heat of the revolution, echoes of Coalbrookdale from an earlier industrial revolution, and with continued acceptance of new ideas by regulators and financiers will keep it.

I’m not suggesting that everything is perfect, rightly there is concern that lenders (or investors in FCA speak) fully understand the risks they are taking. A recent survey suggests that the message is being heard. As a sector we need to continue to reinforce the message heard by those in the dark blue sectors and work, with the FCA, on the lighter blue. What we need is continued consultation, a continuation of the active approach to regulation and a fuller analysis of the security provided by P2P lenders. A move away from a concentration on the nebulous and usually unquantifiable concept of risk to security provided.

For the record I don’t deny climate change, it is real, although I suspect it and its effects have been overstated. As for Germaine Greer, see the CAPX article, I agree with little she says and she has an absolute right to say it and to be heard. Only by hearing can we be challenged to change and develop and yes this may at times be very uncomfortable and much less than cuddly. C’est la vie.

Why more small businesses should take out Credit Insurance

Author

Angus Dent

Date

5th June 201517th May 2016

Trade Credit Insurance has become an increasingly important part of many businesses’ risk management strategies since it was first developed at the close of the nineteenth century. The sector has grown significantly during this time, as more and more companies have taken up the service, and three main providers have now emerged – Euler Hermes, Atradius and Coface – all of whom focus primarily on Europe, which remains the single largest trade credit insurance market.

But despite the penetration that credit insurance has achieved in Europe as a whole, a 2013 report by the consultancy firm Bain & Company found that only 10-20% of the continent’s SMEs currently utilise this business tool.

I believe this to be a real missed opportunity for many small businesses.

The main benefit of Credit Insurance is self-evident: it protects companies from the risk of non-payment by their clients for goods and services that have been provided. The insurer Euler Hermes has calculated that a business’ debtors will often account for up to 40% of its Current Assets and they make the point – borne out by the above statistic – that whilst businesses routinely insure other assets such as their property, this large asset often remains exposed.

Non-payment of a large invoice can cause real damage to SMEs. In fact, nearly a fifth of companies that fail doing so due to bad debt or a lack of working capital. £50k of bad debt to a small business with a 4% profit margin would necessitate an extra £1.25m in sales to compensate for the loss. For any business, let alone an SME, this is clearly a risk worth mitigating.

Taking out Credit Insurance can offer more subtle benefits too. Policies often provide businesses with current and accurate information on their customers, for example, allowing them to judge their financial security. More, taking out credit insurance acts to lower the risk for providers of finance, allowing businesses to borrow at lower rates of interest than would otherwise be possible.

In the current economic climate, improved borrowing opportunities combined with debtor book security is surely too good an offer to pass up.