By
Nick Leslau
I now take a deep breath before picking up the morning's papers. A trickle turned into a brook, which became a stream and has now developed into an economic tsunami - the after-effects of which will be felt for a very long time to come.
Blaming bankers is hardly worth the effort. They are paid to create products the financial markets want. Is it the institutions which invest our money who are to blame for this, the banks who created the products, the regulators who failed to monitor the distribution of the products, or us as shareholders for demanding the banks make every increasing profits? The debate is circular and unhelpful, at least for now, when we have other matters to preoccupy ourselves - such as global financial meltdown. We are in a capitalist economy and begrudgingly must pay the price from time to time of the foolhardiness of all of us. It was ever thus and always will be. That is the nature of capitalism, and as painful as it is for now, the market will work itself out with some help from the Government spending our money, and the cycle will start again.
For those who have cash, the opportunities out there are staggering and will get better over the coming months. For those who don't, well, you're just going to have to hang on and wait for the cycle to get you out of the pickle, if you can.
It will happen.
As far as my principal activity, commercial property, is concerned, times are quite extraordinary. I'd be surprised if anyone who took out a bank loan in the last three years with loan-to-value covenants is not in technical breach today, placing the borrower at the mercy of the lender. Under normal circumstances that would be very dangerous. Today, so long as the debt is being serviced, there doesn't seem to be anything the banks can do to remedy this situation, as there is no market in which to sell into - primarily because there is no liquidity among banks.
The resolution is circular in that the sooner banks lend to one another, the sooner a market becomes established, and the sooner values become more transparent and an orderly market can begin to take form. For now the best the bank can do, and they will, is: if a borrower is in breach, then the lender will seek to impose higher margins and fees on the loan pending the ultimate disposal of the security at some unknown time in the future. That seems fair to me, provided the bank relaxes other covenants to ensure the debt is protected for a sensible period.
We start the New Year somewhere near the bottom of a long cycle, and those shrewd investors today will look back in years to come and will wish they had invested more.
Nick Leslau is chairman and chief executive of Prestbury Investment Holdings, a private property investment company.
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