Italian NPL ABS collections on the way to a gradual recovery

Italian NPL securitisations might be getting over Covid-19. June and July collections were above the pre-pandemic average and judicial proceeds have bounced back. Collections for the rest of 2020 should be more aligned with the pre-Covid picture.

Performance across transactions remains volatile, though: 13 out of 22 transactions registered a decrease in collections in July (compared to the six-month pre-Covid average). But collections have still shown an improving trend since the drastic drop in April (-58%), relative to the previous six-month average. May collections were still depressed, but June and July collections were about 6%-7% above the pre-Covid average.
Judicial collections in June-July were up 36% over the pre-Covid average, as courts reopened. Servicers are progressing with legal procedures that were previously dormant or very slow. Judicial collections accounted for 62% of proceeds in July.

Extra-judicial proceeds continued to be impacted by Covid-19 in July, showing a material degree of dispersion in overall performance. Thirteen out of 19 transactions registered lower collections from extra-judicial routes, while only five registered lower volumes from judicial resolutions compared to pre-Covid.

The pick-up in collections since June has also partly relied on a material increase in note sales (sales to third parties) – EUR 15m versus EUR 1m in April. This sharp increase is associated with an inherent degree of volatility in comparison with the trend of judicial proceeds.

“Since note sales are typically one-off transactions, the performance improvement could be a temporary boost rather than a stable recovery,” cautioned Rossella Ghidoni, associate director in the structured finance team of Scope Ratings and co-author of the latest Italian NPL collections report, out today. Even if the performance of the last two months does represent the beginning of a gradual recovery process, the contraction of the economy and the risk of a second Covid-19 wave by year-end adds an element of uncertainty, Ghidoni added.

Paula Lichtensztein, senior representative of Scope’s structured finance team and co-author of today’s report notes that while judicial and DPO strategies show a lower deviation from their historical average, the share of note sales on total proceeds almost doubled in June compared to the pre-Covid average, showing the largest deviation across recovery strategies. “Note sales strategies have so far negatively impacted transaction profitability. We will closely monitor future note sales to track whether this continues to be the case.”

Pressure on landlords will increase says RSM as extension of moratorium against commercial evictions gets rubber stamp

Today the government extended its moratorium on commercial tenant evictions to December 2020 in a bid to protect jobs. The move will likely further deepen divisions between high street tenants and landlords.

Damian Webb, partner at RSM Restructuring Advisory LLP, comments: ‘The extension of the moratorium will be welcomed by a range of high street retailers and restaurants but will increase the pressure on Landlords.

‘The extension will mean that in numerous cases by December 2020 many landlords will not have received any rent for nearly twelve months. Noting the range of individuals who invest in the commercial property sector this absence of income will regrettably be causing pronounced issues for those affected landlords.

‘Eventually the deadlock must end and a more sustainable approach for both tenants and Landlords needs to be found.’

Robert Jenrick MP, the secretary of state for housing said extending the ban until the end of the year would give struggling high street retailers and restaurant chains a chance to ‘focus on rebuilding their business over the autumn and Christmas period.’

Today’s insolvency figures – businesses warned of a perfect storm brewing with quarterly rents due & end of furlough whilst protections from personal liability for directors also set to be lifted

Insolvency figures released today by the Government’s Insolvency Service show a 33% fall in company insolvencies in the five months since the start of lockdown (April to August 2020) compared to the same period last year. However leading restructuring and insolvency professional, Oliver Collinge from PKF Geoffrey Martin is warning of a perfect storm facing businesses across the country.

Quarterly rents are due at the end of September putting cash flow pressure on businesses that are already struggling, particularly in retail and hospitality, and the government’s furlough scheme also ends next month. The end of the Brexit transition period in less than four months is also likely to place additional pressure and costs on companies that trade with the EU.

Despite these looming financial pressures, government measures introduced to shield directors from personal liability during the Covid crisis are due to expire at the end of this month. Wrongful Trading legislation, temporarily suspended in March to give directors the confidence to continue trading through the lockdown, is being reintroduced in October. This means that directors who are unsure of their company’s viability but continue to trade face potential personal liability if their company ultimately becomes insolvent.

Oliver Collinge, Director at PKF Geoffrey Martin & Co said: “Today’s insolvency figures may appear counterintuitive to many given we’re in the middle of a pandemic, but they are primarily a result of the huge effort made by government to support businesses through lockdown and we expect the trend to reverse sharply over the next few months. With quarterly rents looming and as government life support is withdrawn, we anticipate a spike in companies in financial distress, particularly in hospitality, leisure and retail. Many normally successful firms are beginning to experience financial pressure and companies in areas of the country where local lockdowns are in place will also be at particular risk.”

“The government’s interventions and the general climate of leniency from HMRC, suppliers and lenders are beginning to recede, but proactive planning and actions at this stage can prevent a challenging situation from developing into a critical one. Relying on existing cash reserves in the hope that things will return to normal soon is a high-risk strategy.”

Businesses are advised not to bury their heads in the sand and instead seek help from professionals. By planning for a variety of scenarios including further Covid restrictions, preparing realistic trading forecasts and having up-front conversations with suppliers, landlords and lenders, firms will be better placed to navigate the challenging months ahead.

For some businesses, when the furlough scheme comes to an end, a reduction in headcount will be unavoidable. Quite apart from the emotional challenges of making redundancies, in many cases there’s also a large cash flow impact. If redundancies are necessary, businesses may be able to claim financial assistance from the Redundancy Payments Service (part of DBEIS) to help pay for them.

Oliver Collinge added: “It’s undoubtedly tough out there for many companies. However, there are a wide variety of options and support available to businesses; don’t leave it too late to explore them. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.”

August personal and corporate insolvency statistics, R3 response

Corporate insolvencies fell to 778 in August 2020 compared to the previous month’s figure of 961 and are significantly lower than they were in August 2019 (1,369).

Personal insolvencies fell to 6,359 in total compared to last month’s figure of 7,330 and are significantly lower than August 2019’s figure (8,892).

R3 President Colin Haig responds to today’s publication of the August corporate and personal insolvency statistics for England and Wales: “The decrease in corporate insolvencies over August was driven by a drop in administrations and compulsory liquidations, while the fall in personal insolvencies is driven by a reduction across each of the three main personal insolvency processes (bankruptcies, Debt Relief Orders and Individual Voluntary Arrangements).

“Despite today’s news, there is no question that the pandemic is taking its toll on businesses and individuals, but this impact is not being reflected in the insolvency figures, yet. With a number of temporary Government measures aimed at reducing insolvency numbers set to come to an end on 30 September, this situation may start to change before long.

“The Government’s support measures have provided vital protection for businesses and consumers, but as they begin to wind down and this crucial safety net disappears, we expect to see more requests for personal and corporate insolvency advice and support.

“This is a worrying time for the UK, its economy and its business community. Unemployment is increasing, business debt is rising, and, despite growth in July, the economy is still nearly 12% below pre-pandemic levels.

“More big brands have announced cuts in staffing levels over the last month as they attempt to steer their way through the new landscape created by the pandemic. This, coupled with contraction in the services sector, and manufacturing and construction still well behind their pre-pandemic state, means it is a tough time for British businesses.

“Many SMEs with staff on furlough may realise, when the scheme ends, that they are unable to sustain previous staffing levels, and will have to consider redundancies – which may be expensive, as well as deeply upsetting for all those affected.

“People are worried about the economy – and about their own financial situations. Consumer confidence remains low, as does people’s optimism about their financial future, even though borrowing and spending have increased recently.

“Our members are saying that requests for advice and support are becoming less restructuring-focused than they were at the start of the pandemic, and that enquiries for formal insolvency support are growing in volume, although they are still lower than might have been expected. Insolvency and restructuring professionals expect enquiry levels to grow as the furlough scheme ends, and when CBILS loans become due for repayment early next year.

“Anyone concerned about their financial situation – whether on their own or their business’s behalf – should seek advice from a qualified professional as soon as the signs they might be in trouble show themselves. Doing so will give them the best chance of turning their situation around – and more options and more time to take a decision on how they move forward.”

To support businesses and individuals affected by the economic consequences of the pandemic and highlight the importance of seeking early advice, R3 has formed a new committee of senior insolvency and restructuring professionals, the Back to Business UK Committee.

This committee will work with R3’s team to help produce guides on the profession, its processes, and the benefits of seeking early advice and help educate a range of audiences about insolvency and restructuring, how it can help businesses and individuals turn their financial situation around, and the contribution it makes to the UK economy.

Colin Haig says: “It’s likely that more people are going to need insolvency and restructuring advice and support. We hope this committee’s work will encourage business owners and individuals to seek advice as early as they can rather than waiting until later and limiting their options for improving their situation.”

CVAs crucial to economic recovery, says leading IP

Company Voluntary Arrangements are going to be vital in providing a launchpad for the UK economy’s recovery over the coming months and need strong backing across UK plc, according to a leading insolvency practitioner.

A Company Voluntary Arrangement (CVA) is an insolvency-avoidance process where a debtor agrees a repayment plan with its creditors over a specific period of time, which is then ratified if 75 per cent of creditors vote in favour of the proposal.

The process has been attempted by struggling retailers in recent years – such as Debenhams, Monsoon and New Look – to either terminate their renting lease or renegotiate new leases – opening the process up to criticism from some landlords who often feel short-changed.

However, Adrian Hyde, Partner at restructuring and insolvency firm CVR Global, said the financial damage caused by the Covid-19 pandemic is set to spark a wave of new administrations or liquidations unless businesses go down the CVA route, and is urging those against the process to think carefully about the long-term consequences of voting against them.

Adrian commented: “We need to see a mentality shift on the topic of CVAs from being a process that is being abused by financially-stricken companies to get out of trouble, to one that is going to be crucial in helping this country’s economy to stabilise and thrive in the long-term.

“While it is true that a CVA can potentially disadvantage some creditors, the process is there to preserve as many feasible businesses as possible.

“The vast majority of businesses will turn to using a CVA as a tool to negotiate new terms with creditors just to survive in the long-term – and this approach is only going to gather pace post-Covid as the Government’s financial support winds down.

“It’s important that UK plc embraces the CVA process because in the long run it is going to help more businesses who stand a strong chance of recovering to stay afloat, resulting in creditors eventually receiving all or part of the money that they are owed.

“Businesses across the country have received remarkable financial support from the Government in recent months, but that can only go on for so long, and for many businesses who feel they can trade their way out of this crisis but just need time, then a CVA could be their best solution.”

Can the public sector improve collections, post Covid?

Around six million people across the UK have found themselves with bills they cannot pay as a result of the Covid-19 pandemic.

This figure, from Citizens Advice, was taken from a survey conducted among 6,015 adults between 29 June and 8 July. Since then, Britons have been faced with more job cuts and local lockdowns, so it is reasonable to assume that the number of people with unmanageable debts is even higher.

For local authorities, this poses an enormous challenge. Even before Covid-19, local authority finances were in a sorry state. An Institute for Government report, published in November 2019, attributed the financial difficulties of local councils to the previous decade of austerity, which saw councils such as Lancashire, Northamptonshire and Torbay take special measures to balance the books.

The arrival of the novel coronavirus, then, is particularly ill-timed, loading another financial burden on the already fully-stretched finances of local government authorities.

According to the Local Government Association, Covid-19-related costs and lost income by councils amounted to £3.2 billion between March and May alone.

Subsequent figures released by Moody’s Investor Services suggest that local and regional authorities in the five largest countries of Europe are collectively facing a shortfall of €77 billion.

Researchers found that the financial strength of UK local authorities is particularly weak and likely to require “the use of reserves to balance budgets” until the end of the financial year, at least.

A shift in thinking

Traditionally, public bodies have used the threat of enforcement agents and evictions as blunt methods to extract payments from indebted citizens. But, in June, as industries remained closed, people self-isolated, and the economic consequences of the pandemic were becoming clear, a temporary block on bailiffs seizing assets came into force, running until 23 August 2020.

During this period, the government launched its Fairness in Government Debt Management consultation, which seeks to explore how local authorities can work more collaboratively with citizens to maximise repayments, and minimise mental anguish to the customer.

“Fair debt management lessens the physical and mental impact on individuals struggling to repay what they owe, and the pressure on businesses and business owners,” the government report states.

Enforcement was previously the “go to” for most authorities until the Covid-19 outbreak. For many public bodies, the decision to appoint bailiffs and begin evictions may seem as a low-cost and efficient option.

In actual fact, it is anything but. Opting to use enforcement action at the earliest opportunity can bring a host of unintended consequences. The distress that the customer feels from such an interaction can have a lasting effect on their mental health. And, if evicted, it will be the local authority that will then be tasked with rehousing the individual or offering further support down the line. Local healthcare providers may also find they are tasked with rebuilding the customer emotionally after the psychological trauma of such an event.

According to the government’s Fairness in Government Debt Management report, working more collaboratively with customers can also improve returns to creditors “by avoiding the use of aggressive recovery techniques.”

A National Audit Office case study showed that employing the use of affordable repayment plans saved the creditors of one debt advice agency some £82m in one year alone.

Wokingham Council has become one of many local authorities to review its collection procedures, after it considered the impact that its methods could have on its residents and on its income.

Embracing a new approach

While enforcement techniques are coming back into play for local authorities, the Crown Commercial Service is urging decision-makers to use the new Debt Market Services (DMS) framework, which helps organisations better identify and understand customers in financial difficulty.

The framework — delivered through Qualco — gives authorities access to a government-approved centralised service of customer analytics, debt management advice, collections, error reduction tools, litigation services and, if appropriate, enforcement options.

“DMS uses analytics from credit reference agencies, and other sources, to understand consumer circumstances, meaning that local authority resources are focused towards delivering best value and returns,” explains Matthew Hooper, Senior Commercial Lead, Debt Management at the Crown Commercial Service.

“In addition DMS also saves valuable resources, and costs, by providing access to multiple best in class services delivered through a single supplier.”

Crucially, the DMS services are designed to treat customers fairly and they are open to all UK public sector organisations, including both central government and local authorities.

The DMS was established after its predecessor, the Debt Market Integrator (DMI), had established the need for best practice in government debt management. When the DMI was introduced back in 2015, the economy was in a very different position, but it did highlight the need for a more co-ordinated approach on collections throughout government, as well as a need to resolve inadequate data sharing between the private sector and public bodies. The DMI is now closed to new clients.

A fair, realistic approach

While the DMS framework can never totally remove the need for enforcement, particularly for those cases where all other forms of engagement with the customer have failed, it does offer public bodies the best possible chance of understanding the pain points of their customers. It also gives a clearer picture of those who can’t pay and those who simply choose not to pay.

Some believe that a supportive approach to debt management yields better results for creditors and for customers. The DMS allows public bodies a chance to access the tools which can enable successful outcomes for both parties.

As the UK focusses on getting the economy back on track, public bodies will need every bit of assistance to maximise their revenues, whilst at the same time embracing the Fairness in Government Debt Management initiative. It is only by harnessing the technological advances of recent years, better data analytical capabilities, and available insights into consumer behaviours that government organisations will be able to achieve this goal.

By Christian Jacob, Managing Director, Qualco UK

Paysafe Group Appoints Ismail (“Izzy”) Dawood as Group Chief Financial Officer

Paysafe Group (Paysafe), a leading specialized payments platform, has appointed Ismail (“Izzy”) Dawood as its new Group Chief Financial Officer. Based in the US, Dawood will report into Paysafe CEO, Philip McHugh, when he joins the company on September 28.

Dawood brings to Paysafe a proven track record of over 25 years in financial leadership and has previously held CFO positions in both public and private organizations. His extensive experience includes corporate finance, treasury, investor relations, tax, financial planning and analysis, operational performance management, controllership, M&A and strategy.

Dawood joins Paysafe from Branch International, a financial services organization targeting the mobile generation, where he was their CFO. Before that, he was CFO for WageWorks, who administer consumer-directed benefits (CBDs), and prior to that he held CFO roles at Santander Consumer USA and BNY Mellon. Earlier in his career, he spent 14 years in a range of finance and corporate leadership roles at Wells Fargo, a leading financial services company.

Philip McHugh, Paysafe CEO, said: “Izzy is a talented finance executive with a proven track record in strategic thinking and driving impressive results. I know he will be a real asset to our team as we continue our path to become the world’s leading specialized payments platform.”

Izzy Dawood added: “Paysafe has a very diversified and highly relevant payments offering and never before has the digital payments industry felt more exciting. I very much look forward to being part of this ambitious company’s future growth story.”

Dawood replaces former CFO, Peter Smith.

Sigma raises £5,000 for Birmingham Children’s Hospital through 5k a day challenge

A fitness fanatic team from a Birmingham outsourcing specialist has raised £5,000 for Birmingham Children’s Hospital through a charity 5k a day challenge.

A group of 25 employees from the Sigma Financial Group committed to 5,000 kilometres of fitness each day for 25 days-in-a-row during August.

The challenge saw the team, which is based in the McLaren Building in the city centre, walking, running and cycling to achieve the target – with some also paddle boarding, swimming and surfing.

Sigma’s chief executive Gary Gilburd said: “We have worked hard to raise money for Birmingham Children’s Hospital for several years now and this latest challenge was as popular as anything we’ve done.

“The team were really committed to reaching 5k over the 25 days and we saw some innovative ideas, away from the more obvious running, walking and cycling.

“We were only too happy for staff to take time out during the working day to reach their targets, while some also kept it up even though they were on holiday.

“It’s been great fun, but more than anything we’ve raised a tremendous amount for a hospital which does so much for so many children and their families here in Birmingham.”

Sigma, which offers ‘white label’ customer contact centre services across the utilities, retail, financial services and telecommunications sectors, announced plans earlier this summer to double its 1,500 workforce by 2025 after cementing its position as a major provider to the utilities and energy industries.

The company celebrates its tenth anniversary next year and has won multiple industry awards since it was co-founded by Mr Gilburd and chief operating officer Mike Harfield in 2011. It now counts 14 UK energy providers as customers.

Sigma also has a large call centre facility in Redditch, Worcestershire.

Payment Systems Regulator publishes Annual Report and Accounts for 2019/20

The Payment Systems Regulator (PSR) has published its Annual Report and Accounts for 2019/20, which details its activity over the past financial year.
In 2019/20, the PSR has driven and supported important steps forward in the development of the UK payments markets:

  • in tackling payment scams,
  • helping protect people’s access to cash both now and in the future,
  • in supporting the development of a new interbank payment system,
  • and in continuing to promote competition and innovation in payment systems.

Chris Hemsley, Managing Director of the Payment Systems Regulator, said: “These achievements have been the product of hard work over a number of years, with the PSR working collaboratively with a range of stakeholders. Whether helping to prevent fraud or protecting access to cash for vulnerable consumers, we have worked to ensure the payments systems people rely on deliver good outcomes now and in the future.

“The Covid-19 pandemic has presented challenges for everyone and we have all had to rethink the way we do things. At the PSR, we have focused our work on our key projects, including on cash access, fraud and the renewal of our interbank payment systems, so that we protect people now while supporting improved outcomes in future.

“The PSR’s work has never been more important. As a regulator with a focus on the future, the decisions we take must be right, not just for now, but for five and ten years’ time. Developing our long-term strategy, will mean we are fit to face whatever the future brings.”

Key projects in 2019/20

The regulator has supported important measures designed to reduce the effect on consumers of authorised push payment fraud, including the implementation of the Contingent Reimbursement Model (CRM) Code and Confirmation of Payee. Preventing fraud and protecting victims has remained a key priority for the PSR throughout 2019/20 and the regulator will continue its work driving good outcomes for consumers and businesses.

The PSR has also acted for people who want or need to use cash in an increasingly digital age. Since its last annual report, the regulator has been a leading voice in the debate on cash, taking steps to ensure people can access it in ways that work for them. Its work with industry and other authorities – particularly ATM-network operator LINK and the Joint Authorities Cash Strategy group – has supported the introduction of community-led engagement schemes to understand and respond to people’s needs.
Promoting innovation in payment systems has remained a core focus for the PSR in 2019/20, with its work on the UK’s New Payments Architecture (NPA).

By modernising the way UK interbank payments operate, the NPA has the potential to make them even more resilient while stimulating competition and innovation, offering everyone the benefits of new and improved payment services. To make sure its expectations are met, the regulator has continued to examine and analyse the detail of Pay.UK’s work developing and delivering the NPA.

During the year, the PSR has continued its market review of the supply of card-acquiring services, to find out if this essential area of card payments is working well for merchants and, ultimately, consumers.

It has gathered evidence and information from a range of stakeholders and plans to publish its interim report in Q3 2020, followed by a period of consultation and stakeholder engagement before it issues its final report.

Developing our organisation

As an organisation, the PSR has continued to build its capability and skills: welcoming a number of new payment, legal and policy specialists, including a new Head of Policy, Genevieve Marjoribanks.

Remaining small by comparison to its remit, the PSR continues to ensure that the UK’s payment systems deliver good outcomes to businesses and consumers, including through competition and innovation.

The year also saw the appointment of Chris Hemsley as the permanent replacement for the outgoing Managing Director, Hannah Nixon, in September 2019.

African money transfer boost as World Bank aims for full digitalisation by 2030

In the wake of a 2019 report by the World Bank setting out plans to digitalise the entirety of Africa by 2030, UK-based money transfer provider Paysend has continued to strongly increase its digital coverage across Africa.

Paysend will now allow its 2 million users to send money to new countries like Benin, Madagascar, Malawi, Mozambique, Niger, Uganda and Zambia. This will bring the total amount of countries to 18, covering 30% of the total market.

The African continent has been a strong example of nurturing strong digital payment infrastructure in recent years – particularly in East Africa with the growth of digital wallets – and the World Bank aims to go even further over the next decade with new solutions, services and start-ups. Despite the severe impact of Covid-19 across the continent, Africa has shown a visible resilience as well as a boost in digital growth as more people have made the switch to digital payments. In Rwanda, April 2020 saw five times the amount of digital payments when compared with the pre-pandemic norm.

The hunger for more digital coverage in Africa has been recognised by the World Bank, who want to take digital coverage in Africa from the 27% it had in 2019 to 100% by 2030. Digital coverage is defined as providing digitally enabled access to services, markets and opportunities.

“Paysend has been present in Africa already some time in several major countries like Ghana, Kenya, South Africa, as well as Nigeria, which is one of the biggest receiving countries in the world,” Ronnie Millar, CEO of Paysend said. “Paysend is focused on building an even stronger presence in Africa by opening more relevant corridors allowing people to send money to more countries across the continent.”

Paysend will continue to drive digitalisation in Africa over the coming months by opening more African corridors and allowing more African expats to send money home to friends and family digitally.