Bailout repayments may herald upturn.
Posted on September 28th 2009
On the other side of the Atlantic Bank of America is working with the US regulators to convince them that they are in such a good state that they can now start paying back billions of dollars of federal bailout money. Last week the firm announced that it was exiting two of the bailout schemes and intended to repay as much as $45bn subject to regulatory approval.
It was not clear where the money was coming from to make these repayments but the firm’s CEO was quoted as saying that the business was a much stronger company than it was even a few months earlier. We are starting to see a similar trend over here with RBS floating the idea of a Rights Issue in order to raise cash to repay some of the bailout cash, similarly Lloyds is looking for ways to wean itself off reliance on the Government Asset Protection Scheme.
Does this mean that we have turned a corner and that we may well see a more favourable lending environment in the near future? I would like to think so but my view is that the government and the FSA are going to be very reluctant to allow either bank to pay back bailout money until it is absolutely clear that they can withstand further shocks to the economy and/or a very weak recovery over a prolonged period of time. Whilst we are all pleased that some green shoots have shown up over the Summer months the true test will be getting through the Autumn and Winter months without any great drama. September is statistically the worst month of the year for bad economic news and given that we are two thirds through the month with no great surprises is a good result, let’s hope it continues.
