Have the banks been providing false data to the Bank of England?
In the light of the newly released Quarter 3 Project Merlin figures, both the Guardian and the Daily Telegraph have finally picked up on the growing Project Merlin scandal,which we brought to attention last week. The Telegraph now says:
The latest quarter’s £57.4bn brings the total up to almost £158bn, including £56.1bn to SMEs.
Drill into the figures, however, and a totally different picture emerges – and one highlighted by none other than the Bank of England. Strip out gross lending from simply rolling over existing credit facilities and, hey presto, the total nine-month figure drops to just £77.3bn. Then, net that off against the money coming in the other direction as companies repay their loans and the figures are minus £2.8bn in the first quarter, minus £4.3bn in the second, and a positive of just £400m in the third…
Even on the banks’ suspect figures, gross lending to smaller companies actually contracted by £1.7bn in the latest quarter. As Citigroup economists point out, the latest data also shows small companies paying almost 2.4 percentage points more than the going rate of interest for their credit, with the spread widening.
As becomes clearer by the day, Merlin was a PR trick – and a schizophrenic one at that.
This awakening by the mainstream media is good news, although the BBC haven’t yet caught up. Radio 5 yesterday (from 1hr 30mins 3o secs) featured an entirely unopposed interview with a Lloyd’s Banking Group representative, in which the interviewer failed to refer either to the fall in net lending or to the Bank of England’s Trends in Lending data, which show a downward lending trend overall. This is despite the BBC’s own business reporter Robert Peston having picked up on some of the problems back in July.
Even better news, though, is that Labour has woken up to the growing scandal, with Lord Myners mirroring TCF’s investigations very closely in his Lords question:
To ask Her Majesty’s Government whether data reported in the most recent Bank of England report Trends in Lending have contributed to their assessment of Project Merlin’s performance.
This is the nub of the matter. Revealingly, Tory respondent Lord Sassoon did not reply to the specific question’s focus on the Trends in Lending data, either entirely missing or ignoring the point of the question.
We are, then, approaching the point at which Ed Miliband will be able to stand up at PMQs and ask Cameron why he misled the House in his original response on 2nd November.
And if that were all there were to it, then TCF’s job would be done. But there’s more, and I suspect it’s more serious for the banks.
Consider this comment from an SME owner under the Telegraph article, referring to a point before Merlin:
Merlin always was a con trick. We had funding of c. 400,000.00 with RBS “renewed” in January 2011. The three accounts involved were closed and re-opened with new account numbers – hey presto : 440k new lending!
The FSB also criticised the practice of some banks of calling in business loans, renewing them, and calling them “new lending”.
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