Bad banks demand for interim managers to turn around risky retail debts pushes rates up 20%
Interim Partners says that it has seen average day rates for interim Directors of Debt Recovery or Restructuring in “bad” banks rise to £1,000 from £1,200 12 months ago. Some of the most senior interim managers such as Heads of Recovery Management are now commanding fees as high as £3,000 a day.
Interim Partners explains that interim managers are brought in by banks to help reclaim value from poorly performing loans and ensure those at risk of defaulting are put back onto a more secure footing, for example by renegotiating payment terms or writing off a proportion of the debt.
Banks which have hived off their highest risk debts into separate banking units include Lloyds and Royal Bank of Scotland.
Antony Flagg, senior consultant at Interim Partners, says, “So-called “bad” banks are set up with the specific purpose of dealing with bad debts so it’s imperative that that’s what they do.”
“These banks are under enormous pressure from the regulators to clean up their balance sheets and report bad debts more accurately. With the Prudential Regulation Authority monitoring their activity and progress very closely, they are very much under the microscope.”
Antony Flagg adds that recent criticism from the Financial Reporting Council of the way that banks calculate provisions against possible losses on their loans has heaped more pressure on the banks to accurately value and report their bad debts.
He continues, “In the retail banking sphere, the problem is that the work involved can become highly labour-intensive, so demand for interims with the right restructuring and recovery skills and experience is outstripping supply,” he explains.
“There’s a huge caseload to get through and those dealing with them have to be meticulous. Even small loans have to be treated in a similar way to major borrowing, so they are often just as much work to process. They must also ensure that customers are treated fairly and that there is a robust paper trail to demonstrate this.”
Antony Flagg explains that interim managers have to deal with each individual mortgage or loan customer, conduct in-depth investigations into each case, write a credit paper and go through the credit scoring process anew before a case can be signed off.
He says that some experienced interim managers are handling caseloads of 100 cases per week.
Says Flagg, “Interims are well-placed to act swiftly and decisively when dealing with bad debts. They have the expertise to devise suitable debt restructuring plans for the benefit of both the customer and the banks, while maintaining the independence and avoiding the emotional attachment that permanent staff can build up with customers, which can make the task very difficult.”
“However, as far as so-called “bad” banks are concerned, meeting the demand for skilled staff to service their sprawling retail debt portfolios is a mammoth task – there is just so much work to do it seems never-ending.”
“This is why we have seen such sharp rises in fees for interim managers over the last year or so. With the stakes for getting it wrong so high, their value-add outweighs their cost several times over.”