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Liverpool, from the banking perspective

September 22, 2010

First of all let me clarify my professional background. For the past 5.5years, I was an employee of HSBC, and my last posting was that of a Corporate Accounts Relationship Manager. I say was, because I had just left the job for better opportunities elsewhere. During my time as an RM as we called it, I managed a number of corporate accounts, similar to that which RBS is currently holding against the unwelcomed Americans of Liverpool. I won’t say I know exactly whats going on behind the scenes, because of the many variables involved, however I have a pretty good clue of whats going on inside.

The main concern for many Liverpool fans that the club might end up in the hands of RBS, and that RBS will be the ultimate decision maker for any transfer dealings come January if a buyer is not found. I can assure you that many of your fears are unfounded, but there will be some involvement from RBS. What actually happens once the interest payments are not made on any corporate borrowing is that the loan and or overdraft goes into default, and another banking 3rd party gets involved. This is usually the Corporate Credit Department, whose main goal is to get not just the interest and installment repaid, but also to reduce the exposure the bank has against the company. Technically, this also means RBS has the legal option to have first option on any income Liverpool receive, whether it’d be from matchday tickets, merchandise, and sponsorships, to reduce the facility amount.

However, the Consumer Credit Department also has to bear in mind that if no sufficient cash is available to reduce the arreared amount immediately, the next best option is to actually ensure the longevity of the business, and to use profits generated from the business to repay the loans. What happens is that penalties will be imposed and that the facilities will be restructured, to a lower amount which is deemed manageable by the bank, based on the profit and loss account and its projected income of the business, in this case Liverpool FC, to sustain while at the same time continuing its commitment to repay the bank.

Does this mean they will go into administration? Far from it. It just merely means additional interest will need to be paid at a later date, however the restructured amount means the club can breathe again. Will the club be restricted from buying players in January? In general, no. Again the bankers here are just that. Bankers. We are your financial experts, but not business experts. We don’t know how to run your business better than you do, especially one with a long and illustrious history as Liverpool. However, the club, like any business that end up in this position, will enter an internal watchlist, where any matters relating to the business are closely scrutinized by the bank. Matters will include both information from the club, and information outside the club. For example, if there are rumours from the tabloids that an asset will be sold, like a player or Melwood, regardless how inaccurate the report may be, you can be sure RBS has their eyes and ears on the ground. And knowing how the media works in the UK, you can be sure to hear more “bad news” such as new debts being revealed. This is just a normal part of the procedure usually uncovered during the restructuring and watchlist stage. The debt would usually be already accounted for during the restructure.

How long before the club has to enter administration like Portsmouth? For a club the size of Liverpool, I would give it 9 months at the earliest. Again this is a highly unlikely scenario. Pompey had the added benefit of multiple owners accelerating the procedure, as it meant more borrowing on a shorter time frame. This also means that Liverpool will be able to complete the season, without worrying about any points deduction, yet! What if a sugar daddy came and bought the club? Well your debts will be cleared and you’d be in the good eyes of RBS once again. Can only part of the debt be paid by the new owners while they use the rest to finance player purchases? This is entirely up to RBS. However, if the player purchase can be justified to increase revenue through means of sponsorship, tv coverage, merchandise sales, and improved performances, then there is a high likelihood of approval. Will the Americans be able to sell the club at a profit? If the Consumer Credit Department is already involved, then not likely. The department will have a big say on who it gets sold to, as they will need to do finance checks on the potential new owners as well. Again, their goal here is to reduce the exposure in the shortest time possible, and if the new owner were to offer a clean bill to the exact penny, you can be sure that they will take that option.

Granted I won’t be able to answer any of your questions accurately, as each bank has their own policies. However, if you do come up with questions, or would like to know something about the financing side, go ahead and ask in the comments box, and I will try my best to put my old banking hat on and answer your questions.

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