This past Sunday afternoon, my wife and I joined some of our old neighbours at Wolfhead Distillery, for their “Caesar Bar Sunday.”
They give you the empty glass, and you walk up to the Caesar Bar and make your own drink.
This was my first time, and I really didn’t know what to expect.
My first time up, I was a little shy and came out with what I would classify as a slightly above-average Caesar.
Normally one Caesar would be my max, but after scoping out the room, I realized that I could do a lot better with my Caesar, than what I had concocted the first time around.
So I went up one more time…
This time, more experienced, and determined…
Here’s what I came out with…
At that moment, I was very pleased with myself. Later that night, I was full of regrets, lol.
Speaking of experience…
I first started in banking in 2008, as a Commercial Banking Analyst.
Just as the Great Financial Crisis was in full force.
I was very green at the time, but I was fortunate to work closely with a seasoned banker, who took me under his wing.
He tried his best to include me in almost every important meeting, phone call, email chain etc.
This included several meetings that, to date, were some of the most uncomfortable of my career.
You see, at that time, as the economy was in a tailspin, we were tasked with “protecting our portfolio.”
This was ‘bank talk’ for identifying any accounts in our portfolio that could potentially be a problem, and performing one, or some of the following:
- Increase reporting requirements
- Reduce line of credit limits
- Increase pricing
- Call their loans and “transition” them out of the bank
To put it into perspective, at a time when these businesses needed support the most, the bank took the opposite approach and made it more difficult for many of these accounts, to protect its interest.
This type of paranoia at the banks lasted a few years, and quite honestly, I can’t pinpoint exactly when the shift happened, but at some point, between 2012-2015, things changed in a big way.
Banks went from damage control mode to looking to grow their books of business.
Between 2015 and 2020 bankers were tripping over themselves battling for business.
If you owned a business, banks wanted to lend you money.
As interest rates began to climb in 2022, lending began to slow down.
But not necessarily because banks did not want to lend, more so because the numbers just didn’t work at the increased interest rates — for both the lender and the borrower.
But over the last few weeks, we’ve come across a few situations where it appears that lenders are starting to tighten up again.
Deals that would have been a ‘no-brainer’ a few years ago, are getting heavily scrutinized.
Accounts that banks were previously fighting to keep, are now being treated like ‘problem accounts’.
And this, despite the economy still being strong. Outside of real estate, most economic indicators are still very good.
So if banks are tightening up, is this in preparation for something that could be coming up in the future?
We don’t actually have that answer. And I don’t know anybody that does (except maybe the big banks, lol).
But this is something that is on our radar and something that we are going to be paying close attention to.
What I do know to be true is this… a famous Mark Twain quote:
“A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain.”
For those highly leveraged now, or those who are ‘partners’ with the bank in your business or project, do yourself a favour and stress test your own financial situation.
What would happen if tomorrow that bank came to you and said it was going to cut your line of credit by 50%?
What if they cancelled the financing on a construction deal that you are in the middle of?
What if they re-price all of your loans?
These are just a few questions that we should be asking ourselves if we are in a ‘partnership’ with a lender.
Hopefully, none of us will have to deal with any of these scenarios.
But as Benjamin Franklin said: “By failing to prepare, you’re preparing to fail.”
Until next time,
Vince
