So what was the credit crunch and is it now over?

The “Credit Crunch” was a term originally coined by journalists following the sudden reduction in available credit and the sudden increase in the cost of credit brought on by the world’s economic turmoil.

The global problems were rooted in the US Sub-Prime market where mortgages were given to people who didn’t have the means to pay them back. The sub-prime mortgages were then lumped together and sold off in parcels called Collateralised Debt Obligations (CDOs) to various banks and financial institutions around the world. These CDOs were often then sold on again several times.

The original idea to this methodology was that if small parcels of debt went to many banks then the overall risk would be reduced to a negligible level – in reality it left many ticking time bombs all over the financial and banking sector without the means for anyone to identify exactly who had what toxic asset on their balance sheet. This was so pronounced that by August 2007, banks had practically stopped lending even to each other in case they didn’t get their money back. This quickly resulted in the Northern Rock collapse and nationalisation by Alistair Darling in September 2007.

Banks started declaring some sub-prime losses and began writing them off their books. But with a need to keep the required level of capital ratios to lending in place, assets had to be sold to balance the books. Accounting rules stated that the assets must be held at “Fair Value” (market value). For banks desperately trying to sell assets to cover their position, and the lack of confidence they now engendered, an environment of fire sales was created with the result that asset prices (market value) plummeted and thereby decimated the banks balance sheets.

In the meantime, there were several multi billion pound initiatives by governments around the world to kick start the lending again (both between banks and from banks to businesses), with very patchy results. And still the economy worsened, the job losses mounted and the UK (amongst others) officially entered recession (defined as two consecutive quarters of negative growth).

What options remained to the banks? Initially they went to the market to raise new capital. Subsequently, when this clearly wasn’t enough to maintain requirements, the only realistic course of action was a mechanism to allow them to be bailed out and part nationalised by the government to stop the whole banking system from collapsing.

The banking system now appears to have stabilised somewhat, although it is debateable as to whether the credit tap is fully open to business again (with future business spending therefore needing to be financed out of income, rather than borrowing, benefiting cash generative companies). And in the mortgage market, even though interest rates are at an all time low, fixed rate products are more expensive than they were before the crisis when interest rates were at 5% - 6%. The banks, however, seem to be doing alright and are already looking to repay the government as quickly as possible to get back control (and allow the bonus culture to return).

So are we now seeing the green shoots of recovery or another false dawn? In recent days we have we have been informed of a number of positive signs that suggest the economy is finally emerging from the painful recession. Job losses in the UK and US are slowing (although they are still going up) and the service industry grew last month for the first time in more than a year, with manufacturing output rising by 0.2% in April. We are told that house price falls have slowed and demand for housing is firming up, while the survey of purchasing managers (covering construction, manufacturing and services) showed a sixth consecutive month of increased score (the current climb over the 50-points mark suggests that contraction has turned to expansion). Indeed a leading economic think tank, the National Institute of Economic and Social Research, suggests the recession is over and that GDP actually grew in April and May.

However, there is no room for complacency as inflation in May remained higher then many had expected, which leaves little room for further easing of monetary policy to further boost the recovery of the economy. CPI, at 2.2%, is still above the Bank of England’s 2% target which could leave the MPC having to raise interest rates sooner rather than later. We have also seen oil creep up ominously to a 7 month high, and pass the $70 per barrel mark.

Some commentators have warned that the green shoots of recovery we are currently seeing may not last, and rather than a “V” shaped recession/recovery that many expect, we could be heading for a “W” shaped profile where there is another downward period before a sustained recovery takes place.

So is the recession over? It’s a hard one to call. But the evidence would seem to suggest “not quite yet”. However, despite the potential for a bumpy ride ahead of us, we do appear to be on the road to recovery at last.

Determination, Ambition and Chartered Director

I have worked in Finance across many different sectors of industry and commerce for over 25 years now, the last 13 years as a Finance Director (and, on occasion, MD), and first began Interim FD work in early 2004 (and am now MD of my own company, Intervallum Limited, that provides Interim FD services both directly to companies and also via Private Equity houses and banks).

I have always been ambitious and had a desire to do everything I am involved in to the best of my abilities to see how far I could push myself. For example, a band I founded in the sixth form of my Grammar school back in 1982 was signed by a record label and had a number of releases in the mid-eighties, touring the UK & Europe, finally leading me to make a record which included the likes of Ronnie Wood from The Rolling Stones, Chris “Handbags and Glad Rags” Farlowe, PP Arnold, Reg Presley of The Troggs and Steve Cradock from Ocean Colour Scene (and Paul Weller’s band) when I was MD and owner of a record label and music publishing business.

And so this ambition and desire has always been prevalent in my professional life. I have always been thoroughly fascinated by business and started my career with my first junior role in a company back in 1983. After performing all the various roles in an accounts department to cement my understanding, I undertook the exams of the Association of Accounting Technicians which, although an excellent qualification in its own right, was my pathway to the Chartered Institute of Management Accountants. My interest was always within the decision making process of taking a business forward so the audit route was never an option for me.

To broaden the academic side of my business education after seven years of accountancy exams, in line with my continued experience in the work place, I then undertook an MBA at Edinburgh Business School via the Heriot Watt University. This was mainly done off campus as by this time, 1997, I was already Group Finance Director of a National Facilities Management Group (having previously been Group Chief Accountant and Acting Finance Director of a PLC that I moved from the USM to AIM in 1996).

It was shortly after graduating with an MBA that I became aware that the IoD had started the Director development courses that led to the worlds first (and currently only) professional qualification for Directors – the Chartered Director. It seemed obvious that ensuring Company Directors were correctly examined in their legal responsibilities and good corporate governance etc. could only be a positive thing from the point of view of investors and stakeholders. Thus, enrolling on this path myself, I became the Institute’s 25th Chartered Director early in the new millennium.

So there the journey ends……..or does it? Well – not quite. With my desire to remain current, competent and at the leading edge of business, I have continued with my professional development. I work on the basis that I have the ability to undertake any project or assignment – if I don’t have the first hand knowledge or experience myself, then I am not afraid to go back to a classroom environment or pick-up the phone to someone in my network to close this gap and get the job done – after all, no one within business knows all there is to know on the subject.

Furthermore. reading the financial press on a daily basis, along with monthly accountancy and business journals, and attending relevant seminars and training courses is key, as far as I am concerned, to remaining relevant. In the same way that a sports person spends hours a week practising the skills to remain at the top of their game, so a Director needs to continuously ensure that they are up to date with current legislation, trends and developments within business.

I believe networking to be of huge importance too – not for the instant referrals that the lower end networking groups aim for, but in building lasting relationships with good quality business people and professionals who you come to trust and on whose opinion you can rely on.

So the ambition continues. I wake up every morning with the same question in my head, “What can I do today to make my mark on the world?”

Welcome to my blog

Hello and welcome to my blog space. My name is Paul Hooper-Keeley and my company is Intervallum Limited - we provide Interim Finance Director Services to industry and commerce across the UK and Europe; you can find us on the web at www.intervallum.co.uk.

By way of my background, I have worked within various finance departments since the early eighties and have been a Finance Director since 1996. I am a Fellow of the Chartered Institute of Management Accountants (and was President of the North West Midlands branch from 2003 to 2005), the Institute of Directors' 25th Chartered Director, a Fellow of the Association of Accounting Technicians, and holder of an MBA gained at the Edinburgh Business School via the Heriot Watt University.

I first began providing Interim Finance Director Services in early 2004 and have since been involved in the sale of a support services business, a BIMBO of a telecoms company, the implementation of a new stock control system within the sportswear sector, a circa £150m secondary buy out of a construction business, and other turnaround, restructuring and relocation work with the building services sector.

My work has been a mixture of services provided directly to companies at the request of their Boards, and also via banks and private equity companies (i.e. to focus on their portfolio businesses).

The intention of this blog is not just to give a commentary on what I am currently involved in, but also to express my views on various trends and news items within the economy. This will be augmented by the quarterly article that I have been asked to contribute to the IoD West Midlands magazine, commencing in June 2009.

Please feel free to contact me directly at phk@intervallum.co.uk or on 07958 155705.