50 Daily Express Monday, April 6, 2020
++THE SHARE HUNTER++NICHOLAS HYETT++HARGREAVES LANSDOWN++
will be squeezed. That significantly
reduces profitability.
There is some good news hidden in
the gloom, though.
Banks are generally in much better
shape today than before the financial
crisis. The question now is how long
lockdowns last, and how strong is the
eventual economic recovery?ratios are calculated by dividing
available capital by ‘risk weighted
assets’ or ‘RWAs’.
The move by the BoE to cut rates to
just 0.1 per cent (a record low) in March
is also bad news.
The lower interest rate should be
passed on to borrowers relatively
quickly. But the interest banks pay to
savers is already on the floor.
With little room to push funding costs
lower, the net interest margin (the
difference between what the bank
charges on loans and pays for funding)several companies file for bankruptcy
and, as the lockdown drags on, we
expect to see more.
That means a rise in loan defaults
which will eat into a bank’s profits and
ultimately capital. Mortgage holidays
and debt relief would also reduce cash
coming through the door.
Even financially sound businesses
will be leaning heavily on their bankers
in the months to come.
As many businesses see sales fall to
near zero, borrowing is the only way to
meet expenses. Banks’ key capitalNICHOLAS HYETT
EQUITY ANALYST
Hargreaves Lansdown
http://www.hl.co.ukTHE Bank of England has, essentially,
ordered the UK’s largest banks to scrap
dividends this year. That’s a blow for
investors relying on dividends for
income, but perhaps not entirely
surprising.
The Government and Bank of
England have taken drastic action to
free up capital and encourage lending
to smaller business. Paying dividends to
shareholders in that environment was
never going to be politically popular.
The good news is banks can still
distribute the cash at the end of the year
if the dividend ban turns out to be
premature. However, with some tough
months ahead, preserving capital might
be no bad thing. We’ve already seenBanks are proving that capital counts in a crisis
“cash flow crunch” is only
likely to get worse in the
coming months.
Martin Jones of UHY said:
“It’s worrying to see British
SMEs struggling to pay their
short-term debts already.
“There no doubt the coro-
navirus disruption is going
to make the situation even
worse over the coming
weeks and months.”the financial impact of coro-
navirus, some providers are
temporarily freezing rates at
lower levels or rolling them
back down to what they had
been before they were
increased.
Many providers are also
ramping up their zero-inter-
est overdraft buffers, so bor-
rowers may not pay any-
thing in the short-term.cent of cash needed to pay
debts due in the next 12
months.
The ability to pay short-
term debts out of cash or
other short-term assets is
seen as a key indicator of
business health, especially in
periods of financial stress
such as the current corona-
virus crisis, said UHY.
It warned the currentholds’ finances under
pressure.
Many overdraft providers
had pegged their new single
overdraft rates at around
40 per cent – which is
around double the rate some
borrowers had previously
been paying to use their
arranged overdraft.
However, as part stop-gap
measures to help cushionTHE average smaller com-
pany does not have enough
cash to cover debts due in
the next year, a new study
suggests.
Accountancy group UHY
Hacker Young said an analy-
sis of the balance sheets of
more than 13,500 SMEs
(small to medium sized
enterprises) shows the aver-
age firm only has 95 per
6PDOOHUFRPSDQLHV~GRQWKDYHWKHFDVK
NEW overdraft rules have
come into force from today,
which mean firms can only
charge one single annual
interest rate for both
arranged and unarranged
borrowing.
The changes were
announced by the Financial
Conduct Authority (FCA)
long before the coronavirus
outbreak put many house-5XOHVFRXOGVHHRYHUGUDIWUDWHVVRDU
“This article is designed for investors who make
their own decisions without advice, if unsure
whether an investment is right for you, you
shouldseek advice. Shares can rise and fall in
value so you could get back less than you invest.”:KDWWKH
6XQGD\
SDSHUVVD\
SUNDAY EXPRESS
VIRGIN Atlantic is set to find
out this week if it will get a
multi-million pound bailout
from the Government to help
it weather the coronavirus
crisis.
FOOD surplus charities are
being inundated with dona-
tions from pubs, bars, restau-
rants, manufacturers and
other businesses affected by
the coronavirus outbreak.SUNDAY TIMES
SIR Philip Green’s Arcadia
Group is preparing to dump a
huge number of stores as
retailers fight for life amid the
coronavirus crisis, with
Debenhams teetering on the
brink of administration.
JAGUAR Land Rover is slash-
ing spending on all but its most
profitable models after admit-
ting its factories will not reo-
pen until at least next month.SUNDAY TELEGRAPH
THE Treasury is preparing
contingency plans to take
emergency stakes in compa-
nies threatened with collapse
by the coronavirus.OBSERVER
BRITISH manufacturing faces
perhaps the greatest test in its
recent history, with specialist
firms joining forces with
industrial powerhouses in an
unprecedented collaborative
effort to make ventilators.said Government figures reveal 3,657
high street businesses will only be able
to receive £10,000 grants despite not
receiving the previous benefit of small
business rates relief.
If these firms were to have their val-
uations just one pound higher, they
would be able to receive a further
£15,000 each, totalling £55million for
all firms, Altus said.
Robert Hayton, head of UK business
rates at real estate adviser Altus Group,
said: “This is an anomaly and obvious
unfairness in the design of the grant
funding scheme. It is particularly harsh
on those businesses occupying a prop-
erty with a rateable
value of exactly
£15,000.
“With thresholds
there will always be
winners and losers and
these are found at the
upper end too.”
Nevertheless, all
high street firms have
had their business rates
payments waived for the current finan-
cial year as part of the Treasury’s pack-
age to support firms in the face of the
coronavirus pandemic.
A Treasury spokesman said: “The
Chancellor has outlined an unprece-
dented package of measures to protect
millions of people’s jobs and incomes
as part of the national effort in
response to coronavirus.”+LJKVWUHHWILUPVPLVVRXW
RQdPGXHWR~DQRPDO\
MORE than 3,650 small shops, pubs By Henry Saker-Clark
and restaurants are each set to lose out
on £15,000 of Government grant
funding due to an “anomaly”, accord-
ing to real estate experts.
Councils have been provided with
billions of pounds of cash to offer hos-
pitality and retail businesses grants of
up to £25,000 to help mitigate the
impact of coronavirus.
Businesses with a rateable value of
more than £15,000 will be eligible for
the full £25,000 grant.
Meanwhile, firms with a value of
£15,000 or less will only be eligible
for £10,000 grants.
The Government introduced the
threshold as companies valued below
£15,000 had previously
been eligible for small
business rates relief.
However, this relief
was tapered between
£12,001 and £15,000,
meaning that firms with
a rateable value of
£12,001 would have
their rates reduced by
100 per cent, with the
size of the cut reducing until those
with a £15,000 valuation receive a
zero per cent cut.
Experts at real estate advisory firm
Altus Group said this means that there
are thousands of companies with a
valuation of exactly £15,000, which
have previously received no small
business rates relief, but will now be
ineligible for the £25,000 grants. It
POSITIVE OUTLOOK: Dave Lewis will leave Tesco in good shape.
in his nearly six years in
the role.
Shares in Tesco are largely
in line with its position 12
months ago, despite the FTSE
100 diving in the face of the
coronavirus pandemic.
Supermarket stocks, such
as Tesco, have been broadly
resilient as mass buying of
essential items, such as pasta
and toilet rolls, has helped to
drive a surge in sales.TESCO BOSS TO CHECK OUT AS PROFITS SURGE
TESCO boss Dave Lewis is
expected to guide the
business to higher profits in
his final full year leading
the firm.
The supermarket giant is
predicted to post a surge in
pre-tax profits to £1.85billion
for the year to February, up
from £1.56billion last year.
It will be the final full year
for Mr Lewis, who has been
credited with stabilising Tescoemail: [email protected]
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‘This is obvious
unfairness in the
design of the
funding scheme’