Protecting economic muscle: Finance and the Covid Crisis Alex - PowerPoint PPT Presentation

Protecting economic muscle: Finance and the Covid Crisis Alex Brazier, Executive Director for Financial Stability Strategy and Risk Bank of England

The Covid corporate cash‐flow deficit No deficit Cashflow deficit External finance need £140bn ~£90bn Total deficit after fiscal Cash buffers action Sources: Bank of England, Fame (Bureau van Dijk), S&P Capital IQ and Bank calculations.

Financial Response 1: Support for markets A run to the banks Emergency response Monthly net flows of lending to PNFCs £ billions 40 £300bn BoE asset purchases 30 20 10 0 CCFF: Backstop financing ‐10 £80bn for larger companies ‐20 15 16 17 18 19 20 Source: Bank of England. Data to end‐March 2020.

Financial Response 2: Support for bank lending All the ingredients to lend Lending so far Funding BBLs ~£30bn Lending to medium/large companies, £25bn CCFF £19bn Net bond issuance ~£7bn Guarantees Total deficit after fiscal action Cash buffers £140bn ~£90bn Strength Total deficit after fiscal action Cash buffers Debt finance raised Sources: Bank of England, Fame (Bureau van Dijk), S&P Capital IQ and Bank calculations.

Adding equity Why it might be needed… Gross equity issuance by listed UK PNFCs £ billions 2008 2009 2014 Other years 2018 2019 2020YTD 35 • Companies with high debt at the outset 30 25 • New growth to replace lost capacity 20 2020 YTD 15 • Work off a debt overhang 10 5 ‐ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sources: Bank of England, Eikon from Refinitiv and Bank calculations.

An opportunity for more growth capital? Split of fund assets Insurance company & pension fund assets £bns 1400 1200 1000 800 Estimated unlisted equity held in open ended funds 600 400 200 Other Unlisted equity 0 Closed ended funds Open ended funds Unilsted/private equity Other Approximated from estimates and using following sources: Investment Company Institute, Association of Sources: ONS, EIOPA and Bank calculations Investment Companies, ONS and Bank calculations

Some open ended funds look attractive… Some open end funds Return from highly illiquid growth capital Return from less liquid assets Daily redemption Closed end and long‐term funds Reform of redemption terms could open up new possibilities for growth capital . Return from less liquid Return from highly illiquid assets growth capital Redemption terms aligned with asset liquidity

Protecting economic muscle: Finance and the Covid Crisis Alex Brazier, Executive Director for Financial Stability Strategy and Risk Bank of England