'Snow chance' - angry banks block £1bn SME fund

After their recent kicking from the Government, the banks aren't very keen to back its SME growth fund.

by
Last Updated: 06 Nov 2012

Here’s a turn-up for the books: having spent the last few months attempting to kick the living daylights out of the big investment banks operating in London, the Government is apparently having a hard time persuading them to cough up for its new National Investment Corporation – a fund that’s supposed to funnel money to small and medium-sized businesses across the UK. Perhaps not surprisingly, once they got wind of this proposed windfall tax on City bonuses, the banks decided that they weren’t inclined to help the Government pursue this voter-friendly plan. As a result, only a fifth of the hoped-for £1bn has been raised – and even those who support the idea in principle aren’t comfortable with the current format…

The idea was that this NIC growth fund would raise £1bn to invest in UK SMEs, with some of the money coming from the Government and some from the banks. But although Lloyds and RBS have been strong-armed into stumping up £100m each, Barclays and HSBC are still to commit – and the eight overseas-based banks (who were supposed to be giving £25m each) are showing no interest whatsoever. According to Sky, none of them even bothered showing up at a meeting called by the Treasury yesterday to discuss the situation.

Given that the Government has been so keen to put the boot into them lately – most recently with this bonus tax – this arguably isn’t a huge surprise. Of course the banks aren’t saying as much officially; for example, Standard Chartered apparently told the Treasury it would be inappropriate for it to participate since it doesn’t do any lending in the UK (which you might argue is fair enough, unless of course you see this as effectively a socially-minded tax for its continued presence in the UK). But it’s a bit hard to see why the banks would volunteer some cash for a fund that could possibly increase Labour’s chances at the ballot box.

There’s also some consternation about the structure of the fund. The initial idea was that it would mimic the Industrial and Commercial Finance Corporation, the independent investment body that eventually evolved into 3i. But the likes of HSBC are apparently worried that it might end up as a state-run fund, in which case it might end up making politically-motivated investments (like pumping cash into a marginal constituency before an election), or as a fund-of-funds, which would mean a big chunk of the £1bn gets frittered away on fund managers.

Either way, SMEs hoping to access this much-vaunted source of working capital probably shouldn’t hold their breath…


In today's bulletin:

Thank goodness for the Germans, as Bank bashes the City
'Snow chance' - angry banks block £1bn SME fund
BA gets court to block Christmas strike
Pink pound wobbles in the recession
Be careful about letting your hair down this Christmas

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