Lion taming is a tricky business. It’s generally accepted that positive affirmation is the best method. You tempt the animal with titbits of meat, dangling treats just large enough to get him to do as you wish. But be too bullish — offering a piece of meat too large or holding it a bit too close — and your arm will be bitten off. It is a delicate balance to maintain, but perhaps one that loan bankers should master.
For months now, they’ve been dangling the prospect of cheap financing under borrowers’ noses. Under-lent but over-liquid, they’ve tried to tempt treasurers with every appetising morsel of financing they could produce, whether it has been drawn M&A funding or new revolvers refinanced early at the tastiest prices.
But now borrowers are starting to snap at the bait so aggressively that they’re scaring the banks.
Indeed, treasurers across Europe have taken the message that cheap, easy financing is available from their relationship banks, and they are pushing through transactions to amend and extend their existing facilities.
This was not what the bankers had originally had in mind though. They’d happily offered to refinance their existing deals, but with the fees associated with replacing a revolving credit line included. But amend and extends — offering as they do very little in the way of fees or additional costs that can be ramped up — are a far less appealing option for them.
However, seeing as borrowers have seen the bait and can now smell the blood of banks’ desperation to lend, there is now little that they can do to force their borrowers to retreat. Lions are apex predators after all. Perhaps for their next rounds of client meetings, loans originators should each head off with a chair and whip to try to keep control.
Of course, this is all very good for borrowers and, perhaps by extension the economy. But you cannot have lions taking over the circus for too long. For the market to function effectively, there needs to be a more balanced relationship between lender and borrower. The last thing the audience wants to see is the lion tamer firing off a stream of tranquiliser darts and ending the show early.