The UK government has presented a new raft of financial stimulants designed to get banks lending again, though the British Venture Capital Association has warned the crucial issue is now whether banks will actually back “those who want to back British business”.
BVCA chief executive Simon Walker said: “Private equity has a potentially huge role to play in limiting the damage of the recession, but the banks must immediately deliver on their apparent promises to ministers to lend with much more imagination. If they do not, then taxpayers will witness little return on these enormous sums of money.”
He added that venture-backed companies have been badly affected by some banks' reluctance “to show the flexibility and sensitivity needed in these times while a host of private equity investors stand ready to seek to rescue ailing and failing companies but need the banks to assist those efforts”.
The second UK bail-out plan follows on from a £37 billion (€40 billion; $54 billion) package announced last October, which the government has conceded was insufficient.
The government said it was launching an Asset Protection Scheme that will offer capital and asset protection on assets most affected by the downturn. “This will reduce banks' uncertainty about the value of past investments, so providing them with greater confidence to lend in the future to creditworthy businesses, homeowners and consumers,” it said.
Under the scheme, in return for a fee, the Treasury will provide to each participating institution protection against future credit losses on one or more portfolios of defined assets to the extent that credit losses exceed a ‘first loss’ amount to be borne by the institution.
Secondly, the UK government said it was extending the a credit guarantee scheme, in effect extending the draw-down window of the‘credit guarantee scheme from 9 April to 31 December 2009, subject to state aid approval. “This will support orderly issuance of debt guaranteed under the [scheme],” it said.
In addition to the extension of the credit guarantee scheme, the government is also bringing in a new guarantee scheme for asset-backed securities to improve banks' access to wholesale funding markets, help support lending, and “promote robust and sustainable markets” over the longer-term. The government will, in consultation with issuers and investors, provide full or partial guarantees to be attached to eligible triple-A rated asset-backed securities, including mortgages and corporate and consumer debt.
In a further step, in order to address the problem of restricted corporate credit, the Bank of England is setting up a £50 billion (€55 billion;$73 billion) asset purchase programme implemented through a specially created fund. The Bank will be authorised by the Treasury to purchase high quality private sector assets, including paper issued under the credit guarantee scheme, corporate bonds, commercial paper, syndicated loans and a limited range of asset-backed securities created in viable securitisation structures. The Treasury will authorise an initial purchases of up to £50 billion, financed by the issue of Treasury bills.