“Lehman moment” engenders more caution
0With an ongoing scrabble to rescue Spain’s banking sector, the question mark over Greece and new fears over Cyprus the situation in Europe continues to spiral downwards. Treasury advisers in the UK have their clients on an ultra-cautious footing.
“We characterised this situation last week as a Lehman moment again,” said Arlingclose founding director Mark Horsfield. The consultancy has further tightened its lending list. “We’ve principally pulled the duration to the really short end,” said Horsfield. “A short duration and very liquid is the right response in this environment.”
There has been some interest in the PWLB as the 50 year rate dropped to around 4%. We didn’t push that with clients,” said Horsfield. We don’t want people increasing their balances in a rapidly deteriorating credit market. In this environment we prefer interest rate risk to credit risk.” Many local authorities are “heavily reliant” on borrowing from other local authorities. “It is a critical feature at the moment.”
“There are echoes of 2008 to some extent,” he added, “but at least people are now in a better place now than then. What is worrying is the continuing political vacuum that exists in Europe that nobody is doing anything about.”
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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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