This chart illustrates net financing by UK corporates. Firms can finance their activities from three sources; issuing shares (raising equity), issuing bonds, or lending from banks. The chart above shows that on a net basis, the availabiity of funding has declined during the first half of this year.As the last data point indicates, firms are moving away from bank lending and towards equity and capital issuance. However, the decline in bank lending has largely off-set this trend.
Firms are struggling for capital, and therefore the prospects of a sustained recovery remain bleak.
> Firms can finance their activities from three sources; issuing shares (raising equity), issuing bonds, or lending from banks.
ReplyDeleteLOUD COUGH or profits!
AC1
ReplyDeleteI did think of mentioning profits, but I thought it might complicate my otherwise straightforward story.
Alice
AC1: "LOUD COUGH or profits!"
ReplyDeleteCompanies of course, do use their profits to service the equity it has issued. It's called a dividend.
Without a dividend the only reason for buying a stock would be an expectation of a large rise in the stock price.
Short term'ism' anyone?
AC: "firms are moving away from bank lending and towards equity and capital issuance."
Since the banks can't lend, for a couple of reasons that I can think of off hand.
1. They have horribly huge off balance sheet obligations.
2. They don't actually know which company is going down the tubes next.
And the government is slurping up as much cash as it can, for schools 'n' 'ospitals, the debt market will come to look rather like an african watering hole in the middle of the dry season. With lots of corpses littered around.
Don't worry about inflation. Just hold as much cash as you can lay your hands on.