Alt lending week ended 8th July 2022

Are Equity Release Rate rises really necessary?

Interest rates are on the rise everywhere as inflation sweeps through Western economies to the seeming surprise of everyone from the great and good. In the UK equity release is big business largely because of the meteoric rise in property values and successive governments ridiculous refusal to address supply side problems. Nevertheless the lenders in this market are generally life and pension companies looking for long term assets to support annuity liabilities. This begs the question are these people now increasing the return on annuities which are largely fixed rate? My feeling is that borrowers will feel the pinch a lot more than the lenders will as the spreads will widen considerably to the detriment of choice. Another unconservative result under a Conservative government.

Germany’s economic fundamentals and the German Banking sector

The Daily Telegraph in a editorial takes a pretty dismal view of the outlook for the German economy and rightly so. Throughout the last few decades it has built its whole economic strategy around importing cheap energy from Russia exporting machine tools to China and supporting German exporters through its banking system using the Euro an undervalued currency thanks to its basket case club med members. Looks like all change is underway with the announcement this week of the first monthly trade deficit in thirty years. This is a long terms issue which is not going to go away quickly. In the meantime what about the parochial German lenders? They have always supported German exporters sometimes by supporting lenders with let’s say “issues”. They are also extremely close to the all powerful “mittelstand” through equity and lending. It’s hard to see how this is going to be able to accommodate much expansion in the current environment. My advice to those involved do your homework on German lenders.

Private Equity deals hit the buffers

During Covid the world was awash with printed money much of which has ended up in the hands of Private equity which caused asset bubbles all over the place. The surge in activity over the past couple of years has now screeched to a halt with leveraged deals hit particularly hard. Bond yields have been rising for some time and central banks ramping up interest rates to combat inflation within most Western economies. The background to this is of course ultra cheap money which some though would go on forever. This seems to have been a false premise. There is a legacy here many companies are highly leveraged as a result of private equity leveraging activity and as the tide goes out and valuation tank some lenders will be seen to be skinny dipping.  This correction does not seem such a bad thing as financiers now will have to take a far closer look at what they are lending on. Hopefully those still in a position to lend will continue to support projects with real prospects rather than just arbitraging massively overvalued assets. Several trillion $ have already disappeared from the planet’s balance sheet  (over 2trillion $ in Crypto alone). But we still have a climate problem to solve and this will require new technology and money.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,  We have a self imposed constraint of 3 news stories per week because we serve busy senior  Fintech leaders who just want succinct and important information. For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.