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Philip Smith
is a
freelance journalist,
editor of
London
Accountant
and a
contributing editor
to
Accountancy
to go hand in hand with improved
investor protection, and greater clarity
for the consumer.”
A further issue revolves around which
companies could benefit from the CMU
initiative. While the Commission talks
about SMEs, it is clear that capital
markets are really only relevant for
mid-cap and larger companies. The
costs of going direct to the markets
for financing rather than to banks are
significantly higher.
As Marte Borhaug, senior policy
adviser on financial services for the
Confederation of British Industry, told
a stakeholder’s meeting hosted by Lord
Harrison prior to the release of the green
paper, it was important to focus on who
CMU was trying to help and ensure it
was not just talking about SMEs in terms
of their size, but whether they were
growing and had the ambition to grow.
She added that there were things that
could be done to improve the market,
but companies also needed to take the
initiative to look for alternative sources
of finance.
Learning curve
SMEs could still benefit, however. As
Grout says: “If you further the ability of
larger companies to take funding from
the market rather than from banks,
banks might need to look for something
else to do, and that might mean lending
to SMEs. It is a second tier effect.”
So what will this mean for corporate
treasurers? If the objective of the CMU
is to reduce the reliance upon bank debt,
then larger and mid-sized companies
will have to go to the markets, argues
Grout. “The relevance to treasurers is
that they need to follow what is going
on; they will need to work out how
they are going to use capital markets
and when they are going to use capital
markets. How will they explain this to
their boards?
“There will be a learning curve for
treasurers, and the nature of their
relationships with banks and the capital
markets will change.”
“The objectives of the proposals on Capital
Markets Union are quite laudable,” says
James Kelly, head of treasury at pest
controller Rentokil Initial. He notes that
while there are some “big challenges”
to the proposal, such as encouraging
investment across borders and changing
the preference for funding in-country, the
benefits could be significant if the union
is successful.
Kelly continues: “At the moment, euro
markets are receptive to smaller trades,
such as our recent €50m floating-rate
note, but in more volatile markets,
minimum deal sizes would be substantially
higher. Creating a broader range of
markets, including developing the private
placement market and encouraging peer-
to-peer lending, would reduce the risk
for borrowers of either not being able to
raise money or only being able to raise
an amount that is substantially more than
is needed.”
He concludes: “Clearly, there’s no
guarantee of success and we’ve seen
with the Single Euro Payments Area how
timescales can slip. But, overall, these are
initiatives that should be encouraged.”
THE TREASURER’S VIEW
PHOTOGRAPH: CHARLIE BEST
IAFEI Quarterly | Issue 29 | 49