New behavioural finance software launched

Professor Mark Fenton O’Creevy, Associate Dean (International Strategy) at The Open University Business School, gave a speech at the launch event on 12 March 2014 for a new software program aimed at improving fund managers performance by identifying how behavioural biases affect trading.

Described as a behavioural finance thought leader, Professor Fenton O’Creevy commented that effective management of emotions is not the same as suppressing or avoiding them.

Read the full article on the Global Banking and Finance Review website.

How is Business Finance DOWN when GDP and House prices are UP

John ThompsonGuest blogger: John Thompson for Trans Capital Associates. Founded in 2011, Trans Capital Associates is a financial and strategic consultancy providing solutions for SME owner managers in distressed, underperforming or growth potential businesses.

Business Finance still falling

The Bank of England’s latest Trends in Lending survey released last week shows that business funding fell by some £4.3bn in the three months to November 2013.  Whilst the decline was less than in the corresponding three months in 2012 – it was still a significant drop in net lending, and a massive fall on the previous three months to August 2013 when the drop was just £2.3bn.

The fall in November alone was £3.7bn.

Mortgage Lending increasing

At the same time the Bank and a separate survey from the Council of Mortgage Lenders reported that mortgage lending was at its highest levels since 2008.

Mortgage lending was approximately £17bn in December, nearly 50% higher than for December 2012.  Gross lending in the fourth quarter of 2012 was the highest since the third quarter of 2008.

What is the Bank of England doing about it?

The Governor of the Bank seems to have recognised this lack of balance and in November of 2013 he announced that mortgage lending was being dropped from the Funding for Lending scheme from the beginning of 1014. Other tools to stop the house prices getting out of hand have been threatened.

I have commented on this issue in previous blogs, first in May 2013, when we raised the potential for a new house price bubble,  and then again in September 2013 when commenting on how the Funding for Lending scheme (mortgages) and the Help to Buy scheme had miraculously saved the economy…….

GDP Growth zooms ahead

…… It has just been announced that GDP Growth for 2013 was the strongest since 2007.  In the final three months of the year Gross Domestic Product rose by 0.7 percent meaning that there was growth in each quarter of the calendar year for the first time since 2010.

This surge in the last quarter meant GDP for the year was a comparatively very healthy 1.9%.  The main driver of this increase in growth was the Services sector and there are continued concerns about the lack of balance in the Turnaround of the UK economy. 

To put this in context, the Services sector is now 1.3% larger than it was in the first quarter of 2008 (before the crisis hit), whereas the Manufacturing sector is 8.2% below pre-recession levels and Construction is down by some 11.2 %.

The big concern of economists is that the turnaround of the economy is too heavily biased towards the supply side, and it is predominantly consumer driven. 

Is some Growth better than no Growth

I sometimes struggle to understand how many of these commentators view the alternative.  I would like to think it is a given that some growth is better than no growth.  Lest we forget, it is exactly 54 weeks ago, just before the release of the GDP numbers for third quarter 2012, that the media and many of these same commentators were bewailing the fact that we were just about to enter a triple dip recession!

If we don’t consume the product here in the UK, the demand has to come from overseas.  For the avoidance of any doubt, the rest of the world is not fantastically buoyant at the moment, especially our main customers in Europe.

If the growth doesn’t come from the consumer feeling a bit better about stuff because the government has engineered a rise in house prices through FLS, Help to Buy and a lack of new builds, where is it going to come from?  The price of globalisation, is that you can’t devalue and export your way out of recession as we have done in the past.

This post was originally published on the Trans Capital blog.

Risk Management Remains Financial Priority for Large Businesses

Laurence WebbGuest blogger: Laurence Webb for AMEE (Avoiding Mass Extinctions Engine). Founded in 2007, AMEE (@ameeHQ) uses data and technology at scale to address critical business sustainability challenges and enable more intelligent use of resources. 

New research based on over 250 treasury and finance professionals demonstrates that managing financial risk is by far and away the top priority for major organisations.

Chinese steel manufacturers

News that the financial health of Chinese steel manufacturers is becoming critical demonstrates how financing difficulties and the failure to better manage supply and demand can spell potential ruin for an entire industry

The need to manage financial risk is indicative of the current economic mood, for example political uncertainty in the Eurozone and the latest growth data released by China.  

Such uncertainty undermines the value of cash flows, financial positions and business contracts.  

The research by treasury management firm Kyriba indicates that visibility over global cash flows is integral to dealing with financial risk.  

For example, daily reporting of a company’s bank accounts is no longer sufficient. Instead there needs to be real-time account automation and cash-flow insight, enabling organisations to deal with the risks, costs and barriers of moving cash between regions. 

Supply Chain Management

Another significant risk raised by the treasury and finance professionals pertains to the supply chain.  According to the research one of the most effective ways to mitigate supply chain risk is the ability to accurately predict revenue streams from certain customers. 

This in turn helps to identify potential business exposure, for example: “If supplier x cannot meet production requirement y, we put our relationship with customer z at risk”. 

That is why visibility into future cash flows is one of the most important risk management tools that a treasurer and CFO can have. 

Treasury management technology enabling visibility into financial assets, market liquidity, interest rates, currency fluctuations and commodity prices holds the future for better risk management decisions.  

This post was originally published on the AMEE blog. Tyler Christie, CEO of AMEE, has given permission for republication as Laurence Webb has since left the organisation.