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harder to find these days, says Carlo Diana, Director, Trade Finance and
Supply Chain Management, Lloyds Bank. But, for countless UK companies, the US
remains a huge and natural expansion arena. And it’s clear that our
trans-Atlantic traders have greater need than ever for expert and flexible
It’s surely time to revisit George Barnard Shaw’s
provocative definition of England and America as “two
countries separated by a common language”. In today’s uniquely challenging
trans-Atlantic trading environment, the UK and US seem to me now to be more
like two partners distinguished by shared goals.
History has created important positives in this partnership.
Corporates on both sides of “the pond” have long benefited – and still do –
from their affinities of language and their similarities of business culture.
Growth may be harder to find these days, but the central
truth is that, for countless UK companies, the US remains a huge and natural
expansion arena. Outside the eurozone itself, the US is the UK’s largest single
export market, and a highly significant source of trade for UK importers (see below)
And, although Britain’s self-exclusion from the eurozone
itself has tended to strengthen Germany’s competitive counter-claim to
“favoured nation” status, it remains the case that this country still pulls
considerable weight with US corporations seeking convenient trading and investment
bridgeheads into Continental Europe.
For UK banks, these are the traditional strengths that
continue to inform the striking demand we’re all seeing for trade support from
major corporates which have expanded their activities by opening new subsidiaries,
launching new divisions or making acquisitions in the US.
It’s a demand – not just for formal funding, but also for
expert advice – that’s measurable across virtually all major sectors, but with
a particularly sharp focus, according to the government agency UK Trade &
Investment, on about a dozen key specialist activities. (see below)
There’s no question, of course, that the trading environment
has rarely been more challenging. At the macro-economic level, recovery
prospects in our largest single export market remain stubbornly clouded. The growth in job creation has slowed and the
key economic indicators still look weak.
The main external concern in the US comes from the headwinds
generated by the euro area crisis itself and its subsequent impact on household
and business confidence across the Atlantic. It will take time to assess the
real impact of the European Central Bank’s “unlimited” bond-buying initiative,
designed as it is to draw a line under the long-running uncertainty about the
very survival of the euro.
The principal US domestic worry is about the proximity of
the so-called “fiscal cliff” of the federal budget deficit and its potential
for slowing growth even further. And, inevitably, the political decision-making
track is strewn with uncertainties until we know the outcome of November’s
Presidential election – and the policy clarifications that must emerge from the
play-in period for whichever team wins.
President Obama’s re-election programme includes the promise
to create one million new manufacturing jobs by the end of 2016, 600,000 jobs
in the energy sector, to double exports by the end of 2014 and to set a course
for reducing the US deficit by more than $4trn over the next decade.
Republican challenger Mitt Romney has vowed to create 12
million American jobs over the next four years and “turn around” an economy
currently saddled with an 8.3% unemployment rate. But, in reality, both
parties’ showpiece political conventions have offered few bankable hints of how
either contender will translate electioneering rhetoric into economic reality.
More hopefully, Federal Reserve Chairman, Ben Bernanke
announced last month (September) that it’s to buy "additional agency
mortgage-backed securities at a pace of $40bn per month" to boost the
economy and says it could increase the size of its purchases if the signs don’t
improve. And the Fed’s £170bn “Operation Twist” programme to reduce long-term
borrowing costs for firms and households will continue for the rest of the
Against this testing economic background, it’s clear that
our own trans-Atlantic corporate traders have greater need than ever for expert
funding that’s flexible enough to fit their own circumstances.
In particular, international corporates now rightly seek the
most appropriate forms of finance to help optimise use of working capital as
part of their supply chain. Banks are working very closely with UK Export Finance, the export credit agency, which
last year provided £2.32bn of support the growth of UK exporters. Specific
support instruments provided by UK banks include:
finance: this secures
early payment of invoices and provides access to invaluable working capital.
finance: with a confirmed order from a quality buyer backed by a
documentary credit, it provides the working capital companies need to produce
and ship the goods, take on new contracts and grow their business.
finance: once goods have been shipped to a customer, this advance
payment cuts the wait for that customer to pay.
finance: this short-term finance is linked to a company’s trading
cycle so that it can pay suppliers promptly while allowing time to re-sell the
stock or undertake any capital expenditure required.
support: Banks recognise that many corporates require support for
their larger contracts by the issuance of performance guarantees or bonds. A typical contract may involve the issuance
of a number of different types of bonds with banks able to advise on technical
and practical issues.
These efforts are supported by the government’s Export
Credits Guarantee Department (ECGD) Bond Support scheme introduced last year
which involve ECGD taking a risk sharing position with the largest transactions
- typically, this guarantees 50% of the value of the bond and up to 80% for
advance payment and progress payment bonds.
working capital: This scheme aims to assist UK
exporters to grow by gaining access to working capital finance (both pre and
post-shipment). It’s intended to help businesses that win new contracts
overseas, in particular those of a higher value than usual.
In spite of some discouraging macro numbers, the core truth
is that UK companies are successfully sharpening their game to exploit the still
considerable US trading opportunities even in this daunting climate. New
business is being carved out by adventurous and innovative corporate
Their key question is whether their banks are still
alongside them with the funding, the local know-how and the expert
risk-mitigation advice they need.
For our world-class multi-nationals, it’s invariably not the
credit evaluation itself that’s tricky for banks, it’s the balance-sheet
strength these ambitious corporates need to support their often very large
And the truth is that – certainly compared to their
Continental counterparts – UK banks are now better capitalised and more
strongly positioned to support those UK corporates currently hunting and
finding trade opportunities in the US.
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