Whereas liquidity was the be-all and end-all at the start of the crisis, now the focus has shifted to the resilience of business balance sheets. We are now well into the second phase of crisis for companies as they file accounts, withdraw guidance and alter their business assumptions.
The good news is that the capital markets are well and truly open. Since the lockdown over £30bn of debt has been raised by UK companies across a range of sectors. Indeed, there has been a doubling of issuance in the US, the world’s largest and deepest capital market.
Companies have started to raise equity. This has in part been thanks to the fast work of regulators who have loosened the rules and eased the process. So far over £8bn of equity has been raised through more than 20 deals, with other companies waiting in the wings.
Investors have been largely supportive of the difficult decisions that companies have had to make. These include rebasing or even cancelling dividends. On the whole, shareholders realise these measures are necessary and prudent even if they hurt their returns.
The burden has been heavy but it has been spread around.
With many furloughed, the NHS and care workers have lead the medical response, the Government and the Bank of England have stepped in to fund those who need it, banks have deployed their capital and taken provisions for expected losses, investors have accepted the suspension of dividends and the dilution of holdings through equity raises with good grace, and executives have forgone bonuses.
It is the only way we have a hope of getting through this crisis. Let’s hope it’s enough.
Mark Tweedie is the UK head of corporate banking at Citigroup