Around 65% of companies have not started preparation for the end of Libor, according to a survey by financial consultancy Duff & Phelps. Even more alarming is that 20% haven’t so much as started thinking about it yet.
To lenders and finance trade bodies that worried long and hard about the transition, this must seem like an alarming lack of movement among their clients.
But corporates, by and large, do not favour the move away from the existing benchmark. As far as many of them are concerned, the Libor scandal was created by some rotten eggs in the banking industry fiddling the system, and as such it’s an issue that the banks need to fix.
A significant portion of corporate borrowers feel that Libor was not broken as far as they are concerned, so they do not think that anything needs fixing.
When this line of thinking is put to lenders, the lender often insists it is speaking to its clients and coming up with a solution together with them, even if rival banks are not. If every lender that has said this in the last three months was telling the truth, then there could not possibly have been almost two thirds of survey respondents with no plan of action in place for the transition.
Corporate borrowers are clients. They expect banks to come to them with a solution, just as they would with any other service where they are the client. A corporate would not want to enter into protracted and extensive discussions with its cleaning company, say, about what products it planned to use or over optimal mopping technique — they would just want the job done.
There are a handful of companies happy to stick their necks out and pioneer the move, such as GlaxoSmithKline, which last month signed a £3.8bn-equivalent deal. But there is still a significant likelihood for anyone signing a facility benchmarked against the new risk-free rates now, that the market will move in another direction and make their shiny new structure obsolete, making all that effort a waste of time.
And what about if you’re not a market leading, multinational corporate with a sizeable, sophisticated treasury team operating in an industry largely protected from the coronavirus pandemic like GSK? Covid-19 has rightly pushed corporate focus away from a fiddly equation linked to their bank funding and on to bigger, more existential matters.
Lenders need to appreciate this and present a solution that works for their clients, rather than expecting their clients to put work into getting there themselves.