Two years ago this February the first of the big toxic write offs began - some 500m of them. Few thought it would run to billions, but it did. Some are still arguing about whether the US' recent 800bn slug is enough. The truth is that they simply don't know or have the mechanisms to find out.
In our experience accountants always over react (both positively and especially negatively) and we'll stick our hand up and say that while the banking recession is ending - the real recession is now in play - if only because there simply can't be that many trailer park homes in Wisconsin or buy to lets in Bradford to justify these garganutuan sums.
We called the recession first - so now we're calling the End of the Beginning first too. But that's all. The last people to follow on this journey are either the banks or the Government - both equally complicit in causing and not catching the heavily regulated banking market's collapse. And for the record - the last 10 years were not a rosy bunce for all period as any one in manufacturing or agri-business will tell you. The lesson of the previous sector specific recessions, however, was that without fail Government attempts to intervene were usually irrelevant at best or disastrously ill timed and mis-directed.
The elephant in the room is still the billions, some say trillions, of consumer credit debt. This is being studiously paid down by every one who can - while the interest rates here are still often well into the twenties. This has dominated the past year and will continue to do so for the coming two years - and it will swallow any and all efforts to put cash back into the economy. It will continue the hits on retail and car sales, while a number of other corrections continue (there are a lot of firms doing fine but taking the chance to tidy up - as they should). Protectionism will come from the US and France/Germany at pace - despite the rhetoric - and our international service businesses are most vulnerable here, so sadly the IMF is right - we will be hit hardest. We are, however, first in, and have every chance of being first out, as we were with previous industry specific "recessions".
So as the war time poster says - Stay Calm. These are always 5 year "events" at least. Ignore Mr Balls' grandstanding, and Mr Brown's gesture politics. For compliance businesses this is a time of growth as client firms have to focus on what they sell, not how they deal with red tape. And make no mistake - the bankers may still see themselves as a temporarily beleagured international industry bigger than most of their client countries - but the UK public sector still sees no real recession at all - and won't under this administration. Enforcement, complexity and distraction from red tape is already going through the roof.
So plan for this recession to stay hard until the end of 2010, and expect client worries about recession to change to recuitment in 2012. More prospects will need better protection from red tape now than ever before - so watch what regulators actually do - not what government says they do. Meanwhile do everything in your power to ensure that your need for banks in the future is minimised. The best business models are still and always have been those which are cash positive.
