KPMG & BEDC Assist Medium Sized Businesses

On Tuesday, 12th February 2013, KPMG and the Bermuda Economic Development Corporation [BEDC] hosted an informative and interactive seminar entitled “Bank Financing in Today’s Environment”. The 3 ½ hour seminar was held at KPMG Offices.

KPMG Managing Director Steve Woodward opened the seminar by welcoming the attendees and the panel of speakers.

Mr Woodward began with a review of the Medium Sized Business Unit initiatives that came out of the Forum and Survey that KPMG conducted in 2009 and 2011 respectively which revealed 7 key areas of focus, namely:

• 1) managing a business through economic downturn;
• 2) representation of the business sector in economic policy matters – including Government stimulus and tax incentives; 3) business and strategic planning;
• 4) identifying growth opportunities and supporting expansion
• 5) human resource strategies for recruiting and retaining staff,
• 6) increased need for access to competitive capital/finance and
• 7) timely, relevant benchmarking information to make more informed decisions.

Mr. Woodward reiterated the importance of the Medium Sized Business community to the overall Bermuda economy and noted that KPMG was committed to working with BEDC to service this community of business owners.

Following Mr. Woodward, KPMG Managing Director Craig Bridgewater reviewed results of the 2012 KPMG Bermuda Banking Survey with attendees.

He noted that this was the second annual survey conducted by KPMG to look at the Bermuda banking sector, including the financial performance of the four Banks in Bermuda being Capital G, Butterfield, HSBC and Bermuda Commercial Bank.

A spokesperson said, “The survey provides real examples of what has happened to the Banks in recessionary times since 2008. In addition to hard numbers, Mr. Bridgewater also shared some personal opinions of the Banks’ CEOs that came out in their roundtable discussion.

“Many of the Banks agreed that cash is available in Bermuda; however, institutions are waiting for the right opportunity to invest.

“Once that opportunity comes, they felt that Bermuda is well placed to make a good recovery. They also offered suggestions for encouraging the turnaround, such as finding a way to lower costs of doing business in Bermuda to make it more competitive and attractive to potential investors.”

Three of the four Banks included in the KPMG survey participated in the seminar as panelists. BEDC Executive Director, Michelle Khaldun, introduced each of the panelists including Craig Tucker and Andy Burrows of HSBC; Rob Bernardino of Capital G and Stephen Gould of Butterfield.

“Acting as moderator, Ms. Khaldun asked a series of questions related to banking in Bermuda. Her first question, What Makes a Good Deal? was answered by Mr. Bernardino who advised that Capital G’s loan requirements and standards have become more robust”, the spokesperson continued.

“He offered that “when they look at a deal they look at a number of financial ratios which include debt repayment coverage and loan to value as the two most common ratios.”

“He also provided some insight into some of the intangible factors that they consider, like client due diligence, industry competitive advantages, the company’s cash position, projected earning and strategic planning for business sustainability.

“Stephen Gould added that Bermuda is very different landscape today and as a result Butterfield’s risk metrics and requirements have changed and are more conservative, although the Bank strives to find the correct balance between the Bank’s and the customer’s needs.

“Ms. Khaldun continued with asking if the Bank’s had changed their credit practices. Craig Tucker led the response confirming that HSBC has changed and they are trying to get closer to their customers to be able to encourage them to have a more strategic understanding of their businesses so that they can make hard decisions if necessary.

“Andy Burrows offered that banking is about relationships and HSBC wants to work with their clients to come to agreements and make compromises when it comes to taking hard decisions, stating, “the Banks are a play on the economy and we have to find a way to have the drivers of the economy, Small and Medium Sized Businesses, stay in the driver’s seat.”

“There was further discussion about how business owners can look for alternative ways to raise capital, with Mr. Bernardino suggesting that customers looks at selling non-core assets as a potential way to raise capital because the Banks are not lending the way the used to.

“He noted that there is asset based lending and cash flow lending and the latter is what the Banks are now considering more of. Mr. Gould concurred stating that the Banks are more focused on debt service, cash flow, and repayment capacity.

“The attendees also had the opportunity to ask their specific questions. One attendee identified a key recurring theme of reinvention and strategic planning and queried how business owners should handle this process.

“Mr. Gould stated that it was not the banks role to advise the client how to reinvent themselves but to listen to their clients proposals. He stated that the onus is on the customer to present their business changes to the bank and the bank will determine whether they should buy in to the changes.

“Mr. Tucker offered that you have to be close to the industry you operate in to monitor trends and changes and be flexible enough to implement them. More importantly, he added that you have to be able to produce financial statements and understand the numbers.

“Ms. Khaldun recommended utilizing the advisory services of KPMG and reminded participants that the BEDC’s role is to help connect them with advisors who can help them work through understanding and implementing a strategic plan.

“There were more questions from the audience, but most of the discussion centered on the Banks ability to offer lower interest rates and the need for the banks to loosen up credit if they are to help rebuild Bermuda’s economy.

“Mr. Burrows tackled the first question, stating that there is no capital markets in Bermuda for the Bank to invest in which has an impact on interest rates.

“He added that the cost of Bermuda dollars is expensive, the current risk environment has changed, there is no lender of last resort and new international regulatory requirements are mandating that Banks hold more capital all of which taken together makes it difficult in a small jurisdiction to adjust interest rates.

“Attendee, Sheilagh Robertson, owner of The Harbourmaster, responded to this explanation stating it was “…very helpful in understanding the limitations that the banks work with in such a small market especially within the context of Bermuda dollar lending.

“Given that for many Bermudians real estate is the main form of security for both personal and small business loans, the depressed values and lack of liquidity in the market have had a definite impact.”

“Responding to the loosening of credit, Mr. Bernardino explained that the Banks want to lend; however they have to balance the need to mitigate risk with the responsibility of lending in a way that benefits local business owners and helps to sustain economic growth.

“Mr. Burrows added that they have a duty of care to the shareholders, the country and to the Bermuda depositors and they must behave in a manner that protects the interest of them all.

“Mr. Woodward closed the seminar thanking attendees and panelists, he stated that “KPMG is pleased to continue to partner with BEDC to provide support to the Medium Sized Business Community, hosting seminars on a variety of topics to help business owners better manage and run successful businesses.”

“Following the seminar, attendees had the opportunity to enjoy refreshments and network with the panelist and continue discussions in a more informal setting.

“When asked for their opinion of the seminar, attendee, Tim Smith, CEO of AF Smith, remarked “the discussion was frank, revealing and helpful. Clearly, everyone in the room acknowledged that Bermuda’s current economy was the worst in recent memory.

“I thought the banks were frank when it came to what they thought businesses needed to do to meet the challenges. Equally, some members of the audience expressed frustration as they thought the banks’ lending policies were restricting growth.

“With some 6,000 people leaving the island in recent years, it was generally agreed that we needed to get more people back on the island as they are consumers of goods and services.”

“A medium sized business is defined as meeting at least three of the criteria: 1)Annual revenue of between $1.0 and $5.0 million; 2) Maximum net assets of $7.5 million; 3) Annual payroll between $0.5 and $3.0 million; 4) Between 10 and 50 employees; 5) Bermudian owned and operated; and 6) Not dominant in their market sector.”

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Category: All, Business