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TMA Europe Conference - zombie companies

Some interesting points from the day were that zombie companies remain an issue, not only in the UK, but in much of Europe and beyond. The solution in the UK is political, but probably not readily politically palatable. Banks, led by those owned by the taxpayer and therefore subject to government requirements, should be told to allow the resources locked up in underperforming credits to be released into the wider productive economy. Specifically, the banks should be told to mark them to market. Hoping that their value will be restored by the passage of time will in most cases be over-optimistic. The banks' losses should be recognised and the assets realised, probably below par, but into entrepreneurial ownership with the will and ability to invest (possibly in a degree of operational turnaround) that could lead to productive value creation.

US banks are said to have taken pain earlier in the economic cycle, which is why they are now better able to recognise, write down and deal constructively with underperforming credits.

 

 

Date: 10th June, 2013
Author: Chris Laughton

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