Storm Clouds : Intensive Care Banking

An extended version of an article submitted to ifs news in January 2002

Sadly no banker can ignore the storm clouds that have placed themselves more firmly over the world's leading economies since 11th September. Stephen Hiscock explains the action every commercial lending bank will be taking.

Banking is fundamentally a defensive industry. Commercial bankers lend on what are relatively slim margins knowing that, given the enduring vicissitudes of economic life, not all those will be repaid. In consequence, banks rely on the skills of their intensive care specialists to minimise the damage in those cases apparently approaching disaster.

Intensive care means sustaining those companies worth more alive than dead. Virtually all fall into this category, but need time, and often new skills, to prove it. That means contradicting the expectations of directors and explaining to shareholders that it is not always better to travel hopefully than to arrive. Harsh decisions have to be made now. It can also involve explaining that the directors have a responsibility to the bank as a creditor every bit as much as they do to all the others. It often means being ready to lend more not less.

Here are some of the actions taking place in a bank not far from you:

• A team dedicated to intensive care is being set up. It may not even have been dismantled since the last major downturn.
• Business centres and portfolios are being trawled for unexpected problems and to identify where they might emerge. Loan grades are being independently reviewed, again. Security documentation is being checked and assets are being revalued.
• Exposures at risk are being placed under new, experienced management. Lists of company doctors are being brought up to date.
• Critical questions are being asked of company directors before it is too late.
• Radical solutions to company problems are being seriously evaluated with the relevant advisers.
• Support groups of bankers are being assembled to work together on the larger corporations facing difficulty.

There are many alternatives to corporate failure, but it is often only the bankers who can bring a genuine sense of realism to boards of directors struggling to survive in a vastly different world to the one they have just left. Businesses, and major assets will now have to be sold at prices that were unimaginable a few months ago. Revenue decline will become part of the plan, not just a reason for kicking the sales department.

Intensive care has been described as the best job in banking. Every few years it comes into its own. It requires first class lending skills, sensitivity to personal situations, an open mind, and a very clear view of the bank's position compared with all the other stakeholders in the borrower's business. To achieve exceptional results needs the determination to take chances with both people and their plans, but to accept when there is nothing more to be done. After struggling for months to find a better way, signalling the end is undoubtedly the hardest job of all. Only time will tell how often that will become necessary this time around.

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