the return of focus

10/01/2008 09:47:18 AM
Cantos has a really good discussion on its site where it explores the implications of the credit crunch on the corporate sector.

The participants include: Robin Bew from the Economist Intelligence Unit, Davide Sola from the (ESCP-EAP) European School of Management, and Paul Anning from Osborne Clarke. It's a long and worthwhile read and contains this interesting quote from Davide Sola.

"If we look at a few numbers, if we look at in the States at the overall level of indebtedness, there was an interesting article from Martin Wolf a few days ago. In the 80s it was about 130% of GDP of the US, now it's 350%. Where does it come that from? The financial sector, number one. Five times it moved from 20 to 130, and also from 50 to 100. Which means that the business sector, they always used that. And banks usually were predicating and saying: "You need to have a certain capital structure, you need to have certain capital requirements if you want me to give you some debt." But then if you look at the bank Lehman Brothers went bust on 31x the capital structure they had.

So, you are predicating to your client that they should have a good capital structure but you're doing exactly the opposite. So I think that this correction is going to allow the people to return and say: "I am an industrialist, I am a service company, I should concentrate on what I do in order to cut cost. And I am a bank, I need to start to be a banker again rather than a financial engineer."



Posted by Ed Cotton
Tags: focus (1) money (4) creditcrunch (2) economy (7)

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