Our Banking Tales....

If you have an interesting banking tale, e-mail it to us on sbe@bankingadvice.co.uk and we will publish the best for others to learn from and enjoy.

Reality cheque

A substantial professional partnership client of ours had been pressing their bank manager for 2 years for a better rate on their deposit funds (amounting to some £ millions).  With our help the bank manager finally relented but instead of backdating the request 2 years as requested, said he would have to phase it in over 6 months.

When challenged, he said to our client “You have to understand that the bank only pay me a salary of £50,000 a year and I rely on commission from accounts such as yours to support my standard of living.  If I am to pay you more interest, I need time to adjust so that my standard of living does not suffer unduly.”

Our client was rendered speechless by the effrontery of this remark. However his wife put him straight that evening.  “It seems very straightforward to me dear, you can either pay off his mortgage or ours.  Oh and while we are on the subject did you see the beautiful diamond earrings his wife was wearing when he last took us out to dinner?”  Our client challenged him after this and was then subject to a meeting with the Bank’s Area Director who backed up his manager’s argument!

They did eventually back down but this tale shows just how out of touch with commercial reality bank managers and their superiors can be.

Chinese whispers

A small professional client of ours wished to buy a pension fund property to be paid for out of the business income which he knew could be comfortably serviced from the business cash flow.  The credit committee turned down the proposal because they did not believe the projected 200% increase in turnover in the bank manager’s report.

Our client was aghast as he had only included a 5% increase.  Where had the credit committee got the 200% figure from?  The bank manager had inadvertently included the date in his total line of the monthly turnovers and not seen fit to check his “odd” figures.

“Fore!”

In the 90s recession, an FD of a small electronics company was explaining to his bank manager that the business was having to cut its costs, make some staff redundant and cut its overheads to maintain profitability.  The bank  manager’s response was: “ Believe me we are no strangers to reviewing and cutting costs at the bank; why only recently we have carried out such an exercise and have had to cancel all the Golf Club subscriptions of the regional office as a result!”

The illusive “free” lunch

When we first started advising clients on achieving the best market deals, one of our directors called a businessman to see if he could make an appointment to discuss his banking arrangements to see if they could be improved.

“I don’t need your service” he said “because I already have free banking and pay no charges and have no borrowings”.  Our director then said that as he was relatively new to helping business in this way and was always learning about new deal structures, would the businessman take a few moments to tell him how this free banking deal worked; to which he agreed.

On running through the accounts it transpired that the business processed a reasonable number of transactions but also had a deposit account with £100,000 on it earning no interest.  The loss of interest outweighed the value of the “free” banking by around £2,000 a year.

His “free” banking was more expensive than if he had had an ordinary deal with standard transaction charges and market levels of credit interest!

(Our director got his appointment and the business).

Promises, promises

A successful commercial estate agents complained to us that despite being continually and reasonably profitable, their relationship with their bank was going downhill and borrowing margins and charges were under continual upwards pressure from their bank despite always meeting their obligations.

We asked them whether the bank asked for forecasts.  Yes they did.

We asked whether they always met their forecasts.  Well actually no they didn’t.

Why?  “Well, we have had this one property which we have been expecting to complete on for the past 18 months and we are still sure that its sale will complete once the remaining issues on it are sorted out.”

And you put this sale into your monthly forecasts?  Well, yes.

Our advice was “Be more conservative with your forecasts.  Try leaving it and any other uncertain sales out of your forecasts so that you can be sure that you meet or exceed them.  In this way the bank will become used to you meeting or exceeding their expectations rather than always falling short.  Your actual profitability will be the same but the bank will view it relatively as “better than expected”.

They did and the banking relationship was quickly restored.

Facing up to the worst

A dairy farmer was looking for a large loan to develop a new milking parlour on his farm.  In preparing the application and plan for the bank, he produced a normal set of forecasts and a second set to cover the possibility of a Foot & Mouth outbreak.  The bank manager said that he had never been presented with such a contingency forecast by a farmer before and was very impressed.  The loan application went through smoothly as a result, due to the bank’s confidence that the farmer had looked at all eventualities.

To your mum, you are always a child!

We have noticed a particular tendency in banks to not recognise the transformation of start up and other small businesses into growing medium sized businesses.

You would think that the whole point of getting new business accounts is that a certain percentage of these will grow into large and successful businesses and the banks will benefit from this growth.

In practice, banks appear to be scared by this growth and not recognise the maturing of the business and, as a result, stay in the mindset of still seeing the business as a risky upstart rather than the mature and well managed grower that it really is.

The result is that, despite nurturing and supporting the new business to date, they will not lend beyond a fixed limit and the business has no choice but to move to another bank with no blinkers that usually welcome the newcomer with open arms and the facilities it is looking for.

Very odd behaviour but witnessed too often to dismiss.

Whoops!  My mistake!

Prior to setting up Attfield James one of our directors was a finance director with a company that happened to pay in no cash.  One quarter the account charges statement arrived with a charge of £100 for Cash Paid In.  He rang up the bank who apologised profusely for the “inadvertent” error and refunded it immediately.

He thought nothing more of it until he met our other director and recounted the incident as it was the same bank that this other director had worked for.  Our other director laughed and said that this line item was open to manual intervention by the branch manager and he probably “inadvertently” charged every business account at the branch and refunded the 10% of recipients who spotted it and complained. This apparently was a not uncommon wheeze if monthly targets and bonuses looked a bit short.

We have come across plenty of businesses who never look at their charge analyses and bin them on receipt.  It could be your money you are throwing away.  It is just the same as an invoice so make sure you are happy to pay it!

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