Asset Management, aka the Hospital Division, is the relationship management division of the bank where non performing customers are put. This can be because you have defaulted on your loan payment obligations, or it can be because you smell like you might default.
Banks sell the decision as being an opportunity for the business to gain a Business Banker with more time on their hands to spend helping the business through the immediate challenges, and sometimes this is true. They might even charge you for the "privilege" with an extra service fee.
However more often than not, this is a staging post for the bank to then devise a plan to recoup its money, either by pressuring the business to refinance, pressuring it to sell down assets, or, in worst case situations, appointing someone else to do this for them (ie a receiver/liquidator).
Asset Management bankers are a different breed. Generally speaking, they are very financially astute, and quite experienced. However their method of managing the relationship is different to other bankers:
- these guys don't want to get too close because they might one day need to cut your throat (metaphorically).
- They are much less focused on customer needs and much more focused on bank needs. They are not paid to retain your custom, they are paid to find the most appropriate way to secure the bank's funds. IT IS ALL ABOUT THE BANK!
- These bankers are much closer to the decision makers, ie the holders of credit discretions, so things can move much faster in this division.
Generally the business manager knows in their heart of hearts that transfer to this division is coming, but it naturally comes as a kick in the guts when it does. No-one likes to be told that they have done a bad job, and this is essentially what the bank is saying. Also the transfer of your business to Asset Management turns the temperature up to 11, as business owners are one step closer to losing control of their business. The bank now requires constant updating and the business can't sneeze without asking first for permission. The danger is that you spend all your time adhering to the bank, and as a consequence you have no time left to fix the problems that got you there in the first place.
If you're going to get out of this spiral then there are certain things that we recommend to our clients that you should consider:
1) Understand from the bank exactly what it is about the business that is concerning the bank. This becomes the focus of any future reporting strategies. Some obvious reasons for being put in Asset Management are:
a) Profitability is insufficient to meet debt servicing (interest and or scheduled principal reductions)after all other trading obligations are met (incl tax)
b) Cash is insufficient to meet debt servicing - cash is different to profit. you can be profitable and still not have enough cash because your debtors or inventory is too high.
c) The value of your security has fallen below the bank's comfort threshold, and your servicing capacity is a concern.
d) You or your industry have become unattractive to the bank.
However don't be distracted - these are symptoms, not causes of the transfer. A bank will continue to service a non profitable or inadequately secured customer from the normal relationship stream as long as the credit managers have confidence that management knows how to rectify the problems.
The fastest way out of Asset management is to regain credibility with credit managers that you have the knowhow and ability to trade out of the pickle that you collectively find yourselves in. This leads to the 2nd recommendations
2) Construct a plan early to fix the problem. This plan needs to recognise 1 thing above all else - The bank no longer cares about your future business prospects. It is only interested in how its going to get its money out of your business. The plan needs to tackle growth, sales, trading performance etc from this perspective.
The plan starts with numbers - ie a forecast P & L, Balance Sheet and Cash Flow Forecast - and each number needs to be justified as validate its accuracy.
Ideally the bank will entertain a plan that rectifies financial strength quickly using conservative and realistic assumptions leading to a line of sight to the bank getting its money out. The punchline of the plan needs to be "and then the bank gets paid out!". This payout can come from refinance, sale of assets or surplus cash from trading, but it must end with this line.
3) Agree a reporting format with the bank that is very quick to produce, and goes to the heart of the bank's concerns, and then report as regularly as you can. The best way to cause a bank to appoint an external administrator is to not tell them what is going on. The bank will assume that if they don't know what is happening, then you don't know what is happening.
Be careful here though - the report must be quick to produce. Too often a business decides to prepare a 20 page report for the bank to show them what is going on. the trouble is, this precedence is then set and the bank will expect this level of detail weekly/monthly and that is when you lose control of your business.
4) Be very open and hide nothing. Good news or bad, tell the bank. They will find out anyway, so better it comes from you.
5) Your Asset Management Banker is Human. He/She doesn't want to ruin your life. Not many people are this heartless. They do however have a job to do. If you make their life easy, and if you make them look good, then there is a lot that they can shield your from, and right now you need all the advocates you can get.
6) Don't take the bank's wants on face value. The bank will likely have had an insolvency Accountant prepare an investigative report on your business, and quite often these reports are very one dimensional - sell bits to pay down debt. If you believe that you can trade out of the difficulties without selling things then you should present this, but beware that your plans should not require extra bank funding, as you are unlikely to get it.
7) Consider getting a banker on your team. Having access to a banker gives you the ability to better plan your communication and to understand how the bank will react before they react. They also provide you with a good sounding board regarding the best way to keep the bank on side while you trade out of the situation. Pearl Financial Services provide this service, though any banker would do....
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