Corporates will feel the full impact of the banking crisis when they refinance
Corporate insolvencies have been relatively low given the scale of the financial crisis, however Ann Cairns, former CEO of ABN AMRO Transaction Banking, says that could change in a few years when companies go to refinance as banks still have distressed assets on their balance sheets that they are not correctly valuing.The real impact of the financial crisis on corporates has yet to fully filter through, and in a couple of years when they go to refinance they could hit a brick wall, says Ann Cairns, managing director and head of Financial Industry Adivsory Services, Alvarez & Marsal. Cairns says European banks still have non-performing assets on their balance sheets but are not marking their collateral to face value or even recognising that these assets are underperforming.
So far the level of corporate insolvencies has been low but Cairns says that when companies go to refinance in the next couple of years, banks' ability to lend will be reduced as they cannot continue to ignore the fact that they have distressed assets on their balance sheet. Bank lending to corporates was severely impacted during the 2008 financial crisis and one of the major themes at this year's Sibos conference in Amsterdam is "Rebuilding trust", although no one here at the RAI centre in Amsterdam is talking about credit availability per se.
Commenting on the stress tests of European banks earlier this year which saw a much lower fail rate (seven out of 91 banks) compared to the US tests, Cairns says if these tests were conducted now using Basel III criteria, more than 20 banks would have failed. "They should be putting in place contingencies that help them survive," she said.
Cairns is perhaps better known as ABN AMRO Bank's former CEO of Transaction Banking. She currently leads Alvarez & Marsal's team responsible for Lehman Brothers Holdings International across Europe and has been disposing of banks, equity investments and trading assets for the several hundred legal vehicles across the region. Commenting on the collapse of Lehmans, Cairns said that before the bank became insolvent it was having liquidity problems as some of its nostro banks were concerned and put some of its money into suspension accounts. "The lack of liquidity played a much larger role in Lehman's long-term sustainability," she said. "It had a liquidity crisis rather than an insolvency crisis. Banks have an issue with their own payment flows."
Date Posted:28th October 2010