This highly successful second annual meeting of the joint INSOL International/INSOL Europe Financiers’ Group took place in London on 20 November, chaired by John Willcock, Editor of Global Turnaround. 

The stimulating discussion was hosted by Commonwealth Bank of Australia, whose Mark Sutton, Senior Executive Manager, Group Credit Structuring,  opened the proceedings. The panel was then introduced by Derek Sach, chair of the INSOL International Financiers’ Group. 

The theme was the package of measures floated by UK regulators in response to a number of controversial business collapses recently, including the retail group BHS and the outsourcing giant Carillion.

The suggested responses include strengthening corporate governance pre-insolvency, and potential new powers to investigate and pursue directors over companies that have been sold or dissolved. 

This prompted two strands of discussion; given these changes, who would want to be a director? And more generally, who should play the role of ringmaster in the kind of complex restructurings now being seen with multinational companies boasting increasingly complicated capital structures? 

The panel consisted of Patricia Godfrey, a partner in the banking and finance team at CMS; Andrew Shaw, a civil servant in the UK’s Insolvency Service who currently heads its team preparing for Brexit; Ed Boyle, a restructuring and insolvency partner with KPMG; Julian Verden, Stemcor Group’s managing director for Europe; and Richard Stables, EMEA head of restructuring at Lazard. 

The debate was brought to a conclusion by Alastair Beveridge of AlixPartners, past Co-Chair of the INSOL Europe Financial Institutions Group, and the joint group now looks forward to a similar event next year.

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INSOL Europe FIG and INSOL International Lenders Group Joint Seminar 2017

On 11^th October 2017 INSOL Europe’s Financial Institutions Group and INSOL International’s Lenders Group held an inaugural joint seminar at the offices of The Commonwealth Bank of Australia. Alastair Beveridge & Florian Joseph and report on the event.

After a quick introduction by Matthew Phipson of Commonwealth Bank, the presidents of INSOL Europe (Radu Lotrean) and INSOL International (Adam Harris) gave very warm welcomes to all and endorsed strongly the collaboration between the two organisations.
 
The panel was introduced by Derek Sach, chair of INSOL Internationals’ Lenders Group, who advised the audience about the current project, being led by Stephen Foster of Hogan Lovells, with the title “What will next time look like?”.  He referenced the historic effectiveness of the London Approach and the very extensive experience around in relation to complex restructuring but wondered how that might work given new ECB regulations and new accounting standards.
 
The chair of the panel, Professor John Kay (a renowned economist) started the discussion with his view on the different approaches taken to regulation in 1) financial services (written by lawyers and based on prescriptive rules and regulations) and 2) utilities (written by economists and based on structures and incentives) – he felt that the economists approach had probably been more effective, albeit not perfect.  He felt that the financial crisis in 2008/9 had demonstrated a failure in regulation and he was concerned that adding more regulation may not be the answer and may have unintended consequences.
 
Stephen Foster then turned the discussion to the new IFRS9 rules and the move from provisioning on incurred losses (current rules) to lifetime expected losses (new rules from January 2018).  He stated that for 1 in 6 banks this would result in a predicted need of a 50% increase in capital base and that for 80% of banks it would result in higher provisions.  The likely consequence was that banks would have to sell positions early (or potential commence enforcement earlier) which would provide opportunities for secondary buyers.  He also mentioned the restrictions in certain leveraged transaction documents of either white list (restricting lenders ability to sell) or need for borrower approval which might act to impede attempts to sell and result in an impasse.
 
Alistair Dick (PriceWaterhouseCoopers) took a slightly different tack talking about how the rules would impact companies/borrowers – he was concerned that it might actually restrict the availability of credit to companies at precisely the time they needed it most and that this could be very problematic.  The inconsistent approaches in different countries to dealing with borrower and ultimately bank liquidity challenges was recognised as an issue generally which has continued since the crisis.  Overall he felt that trading of debt positions (which was expected to be a consequence of the new rules) was a good thing for the market and would help with the recycling of capital.
 
The discussion reverted to regulation with Simon Samuels (Veritum Partners) – in particular the differences between the regulated and un-regulated players.  He felt that banks had had more capital than they really needed pre-crisis and were now being asked to increase that substantially – he felt this was an inefficient use of capital. Concerns were raised that Basel IV with its risk weighted floor provisions meant that banks would not only be encouraged (by the rules) to sell bad assets they would also be encouraged to sell good ones.  He reminded everyone that IFRS9 was just about recognition of the losses – not about the amount of loss actually incurred – and that any dramatic event could quickly eat up capital reserves because of the way provisions would from 2018 have to be accounted for.
 
Stephen Kirk (Pelham Capital) started boldly stating that poor regulation caused the crisis, poor new regulation was stifling recovery and that Donald Trumps newly announced Treasury White Paper on bank de-regulation was ultimately the right way to go.  A combination of low interest rates, high amounts of litigation and crushing regulation has led to banks being a very bad investment in recent years – he illustrated the extent of the value destruction by comparing the values of 2 very large banks who were now roughly 10% of the value they previously had. Overall he felt the US was going in the right direction by proposed reductions in regulation, the UK was too hawkish and that after many years the ECB was starting to get a grip on European banks and making good progress.
 
Professor Kay then talked about his concern that too many stakeholders were pretending to have a level of knowledge about the world which they just didn’t have.  He queried whether in reality we are being naïve about what we expect regulation to actually be able to achieve.  In his view the ECB was moving away from using models (as they can only really do so much with limited knowledge often inviting the user to start with the desired result and work backwards) but at the same time IFRS9 was moving towards more modelling use.
 
A vigorous discussion then took place on the purpose of banks (where the panel had differing views),  concentration risk and the benefits of diversification and the potential to split banks as between mortgage lending (still a huge part of many banks and generally done OK) from commercial and consumer lending.  Without conclusion and out of time the session was wrapped up after questions by Alastair Beveridge (AlixPartners and Co-Chair of the INSOL Europe Financial Institutions Group).
 
An audience of around 50, drawn from an extensive spread of lenders and advisers, attended the session and the drinks and canapes which were available after the session.  Another successful collaboration to add to the Tel Aviv conference in June this year. INSOL Europe and INSOL International hope to be able to organise a further joint seminar early in 2018 to continue this fascinating debate.