The Crisis Playbook

Greg Mansell • 24/03/2020
Life was normal a month ago. There was a nagging feeling that COVID-19 could change all that, but it wasn’t a big concern. Since then, the unravelling of freedoms we might have taken for granted has been rapid. 

We are fortunate our key institutions have acted with equal speed. The department of health is tackling the advancing health crisis. Meanwhile, the Treasury and the Bank of England have reassured us that they will do whatever they can to prevent the related economic crisis.

The Bank of England will buy £200bn of assets, mainly government bonds, to stimulate spending in the economy. The Treasury have pledged £30bn of measures to protect businesses and households and will defer £30bn of taxes. The COVID-19 Job Retention Scheme has a blank cheque to protect workers. Further, these institutions will coordinate to deliver lending schemes with £330bn of funds.

They are using the “Global Financial Crisis” playbook – spending money while businesses and households instinctively cut back.

The new measures go beyond anything we’ve seen before, but the likenesses are uncanny. In November 2008, Alistair Darling, the chancellor at the time, announced £20bn of measures. The Bank of England began buying assets in March 2009 and had bought £200bn by November 2009.

However, an extreme recession had already begun before the measures were in place. There was also no precedent; we didn’t know if Quantitative Easing would work. We didn’t know how banks could manage in a near-zero interest rate world, and we feared hyper-inflation and rapid rate rises as these measures unwound.

This time, our institutions have put these measures in place within days and weeks not months and years. 

And we understand how these measures work, allaying old fears. The 2020 Budget and follow-up announcements have prioritised small and medium-sized enterprises (SMEs) and the hardest hit industries.

A 12-month business rates holiday, cash grants and subsidised payrolls, are a vital boost. Retailers – among the largest employers in the country – need those savings. A loan scheme for SMEs and grants for small businesses offer further support to all industries. There are over 300,000 VAT-registered SMEs in retail, leisure and hospitality that can use these schemes as a safety net. 

However, many retailers lack the investment-grade credit ratings needed to be eligible for the new Covid Corporate Financing Facility (CCFF) and would struggle to prove they were of equivalent financial strength.

Even so, unlisted funds in the MSCI UK Quarterly Property Index have an annual rent roll of £2.5bn from retail properties. Almost half that total comes from only 20 retailers, most of which would be eligible for the lending facility. The CCFF should be a comfort to major retailers and property funds.

There is more change to come. But I keep thinking about the depths of concern in early-2009 and how quickly that turned into the strongest recovery on record before the year ended. Even when the recovery began, it was difficult to see the path out. 

We have learned many lessons since the Global Financial Crisis, and we are putting them to use today. Now, as back then, I think it is important to stay up to speed with what is happening on the ground in our industry and look out for opportunities. 

To borrow Governor of the Bank of England, Andrew Bailey’s recent comment, “Stop, look at what’s available, come and talk to us…”

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