11 Nov 2010

Troubled Borrowers should not be treated too leniently

One of my favourite City Commentators, Anthony Hilton, writes in his Evening Standard column that it would be in EMI's interest that Terra Firma and Citigroup 'talk' to resolve their dispute. But all too often these negotiations are a win-win situation for the over-leveraged borrowers. Any concession by the lender is in effect a gift as the really logical situation would be a write-off of the equity and the transfer of ownership to the lenders. This would also be beneficial from a societal point of view as it would redistribute wealth in a more equitable way, preventing capitalism from becoming a one-way bet for the borrowers. 
From a business point of view, banks must look after their profits, this benefits not only their shareholders but also taxpayers as any capital cushion they build up will also reduce the amount of any future bailout that may be required.

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