Protecting economic muscle: Finance and the Covid Crisis Alex - - PowerPoint PPT Presentation

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Oct 03, 2023 571 likes •659 views

Protecting economic muscle: Finance and the Covid Crisis Alex Brazier, Executive Director for Financial Stability Strategy and Risk Bank of England The Covid corporate cashflow deficit No deficit Cashflow deficit External finance need

SLIDE 1

Alex Brazier, Executive Director for Financial Stability Strategy and Risk Bank of England

Protecting economic muscle: Finance and the Covid Crisis

SLIDE 2

The Covid corporate cash‐flow deficit

No deficit Cashflow deficit £140bn ~£90bn Total deficit after fiscal action Cash buffers External finance need

Sources: Bank of England, Fame (Bureau van Dijk), S&P Capital IQ and Bank calculations.

SLIDE 3

Financial Response 1: Support for markets

A run to the banks Emergency response £300bn £80bn BoE asset purchases CCFF: Backstop financing for larger companies

Monthly net flows of lending to PNFCs

‐20 ‐10 10 20 30 40 15 16 17 18 19 20

£ billions

Source: Bank of England. Data to end‐March 2020.

SLIDE 4

Financial Response 2: Support for bank lending

Lending so far All the ingredients to lend

Funding Guarantees Strength

Total deficit after fiscal action £140bn Cash buffers ~£90bn Net bond issuance ~£7bn CCFF £19bn Lending to medium/large companies, £25bn BBLs ~£30bn

Total deficit after fiscal action Cash buffers Debt finance raised

Sources: Bank of England, Fame (Bureau van Dijk), S&P Capital IQ and Bank calculations.

SLIDE 5

Adding equity

Why it might be needed… Gross equity issuance by listed UK PNFCs

Companies with high debt at the outset
New growth to replace lost capacity
Work off a debt overhang

‐ 5 10 15 20 25 30 35 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 2009 2014 Other years 2018 2019 2020YTD

£ billions

2020 YTD

Sources: Bank of England, Eikon from Refinitiv and Bank calculations.

SLIDE 6

An opportunity for more growth capital?

Split of fund assets Insurance company & pension fund assets

Other Unlisted equity

Sources: ONS, EIOPA and Bank calculations Approximated from estimates and using following sources: Investment Company Institute, Association of Investment Companies, ONS and Bank calculations

200 400 600 800 1000 1200 1400 Closed ended funds Open ended funds £bns Unilsted/private equity Other Estimated unlisted equity held in open ended funds

SLIDE 7

Some open ended funds look attractive… Reform of redemption terms could open up new possibilities for growth capital.

Return from highly illiquid growth capital Return from less liquid assets Daily redemption Return from highly illiquid growth capital Redemption terms aligned with asset liquidity Return from less liquid assets

Closed end and long‐term funds Some open end funds

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Alex Brazier, Executive Director for Financial Stability Strategy and Risk Bank of England