EDITOR NOTE: In 2019, small businesses in the UK comprised three-fifths of private sector employment and 99.9% of the UK’s entire business population according to the UK’s Federal Small Businesses. So, when the pandemic struck the UK, damaging their economy, which companies did the Bank of England bail out? 53 of the biggest ones, of course--at the expense of the 99.9% employing most of the UK population. Is this another way of banks and government picking winners and losers, creating an uneven ground that stifles competition?
The Bank of England (BoE) published a list of the 53 companies to whom it has lent more than £16 billion, at absurdly low rates, as part of its Coronavirus Corporate Financing Facility (CCFF). Launched on March 20, the scheme enables the BoE to buy short-term corporate debt (“corporate paper”) of up to one-year maturity from companies at interest rates of between 0.2% and 0.6%.
To qualify for these funds, you need to be a large company that is adjudged to have been in sound financial health before the coronavirus outbreak but is now facing acute short-term cash flow problems as a result of that outbreak. Your debt must also be rated investment grade at the time of the loan application.
You do not need to be a British firm to qualify for the loan program; you just need to be deemed to provide “a material contribution to the UK economy.” Around two out of five of the recipients are headquartered overseas and the program’s biggest beneficiary so far is German chemicals giant BASF, which was given a loan of £1 billion. Another German company, Bayer (infamous for having acquired Monsanto to then get swamped by Monsanto’s horrendous litigation), also received £600 million.
Many of the loan recipients are in the sectors hardest hit by the fallout of the coronavirus crisis:
So far, the biggest recipients of state aid in Europe are airlines such as Lufthansa and Air France-KLM. Some airlines are also getting help from central banks. In the case of the Bank of England’s CCFF program, four companies have received a total of £1.8 billion in short-term loans: British Airways (£300 million), Ryanair (£600 million), Easyjet (£600 million) and Hungarian low-cost carrier Wizz Air (£300 million).
Ryanair is a particularly interesting case given that it has €4.1 billion in cash reserves. As such, it is not suffering short-term cash-flow difficulties. What’s more, its owner, Michael Leary, has made a huge song and dance about the injustice of his cash-flush airline having to compete with flagship carriers primed with bailout cash, which is a perfectly justifiable point if it wasn’t for the fact that at the same time Leary was badmouthing his rivals, his company was also receiving a virtually free loan of £600 million from the BoE.
Seven automotive companies have so far received a grand total of £1.94 billion of virtually free credit from the Bank of England. They are (in descending order of loan size):
- Nissan Motor Co (£600 million), which recently announced it will not be shutting down its UK plant, at least for now;
- Toyota Financial Services (£375 million);
- Rolls Royce Plc (£300 million);
- Mitsubishi Corporation Finance plc (£300 million);
- Inchcape Plc (£100 million), an automotive retailer and distributor
- Honda Finance Europe PLC (£75 million)
- Alliance Automotive Investment Limited (£20 million), a vehicle parts distributor
Interestingly, four out of the eight recipients are finance divisions of automakers, which dominate the UK’s auto finance sector. As we reported just over a week ago, those finance divisions are faced with a dicey situation as vehicle sales plummet, putting at risk the entire feedback loop upon which the UK’s version of auto leasing — “personal contract plans,” or “PCP” as they’re called — depends. Industry lobby groups have been badgering the government and the BoE for a bailout.
Given the sorry state of the UK brick-and-mortar retail, it should come as no surprise that seven of the companies that received short-term loans from the BoE are in that sector:
- Australian shopping mall owner Westfield (£600 million)
- French luxury retailer Chanel (£600 million)
- Department store giant John Lewis plc (£300 million)
- Burberry Ltd (£300 million)
- Marks & Spencer Plc (£260 million)
- Greggs plc (£150 million)
- Fuller Smith & Turner Plc (£100 million)
Retail sales in the UK plunged by 18.1% year over year in April, the first full month of full-on lockdown, according to the UK’s Office for National Statistics (ONS). It was the worst monthly decline since records began. Sales at “non-food stores” plunged by an eye-watering 42%. And sales at clothing and shoes stores collapsed 50%. The main outlier was online sales, which rose by 18%. But this surge in sales wasn’t apparently enough to stop troubled online retailer ASOS from hitting up the BoE for a £100 million loan.
BoE Becomes Lender to US Cruise Ship Operator Carnival
Another beneficiary of the CCFF was US Cruise ship operator Carnival — a company with hefty fixed costs and collapsed revenues, which, like all major U.S. cruise liners, does not currently qualify for a single U.S. dollar of bailout money because it is incorporated, for tax reasons, in Panama. But that doesn’t mean it can’t get a helping hand from the Bank of England, which lent it £25 million.
The BoE also holds £170 million in corporate paper issued by PACCAR Financial, a division of US company, PACCAR which owns US heavy-truck manufacturers Kenworth and Peterbilt and Dutch heavy-truck manufacturer DAF.
Corporate Tax Avoiders and Other Bad Actors
The BoE also helped out Johnson Controls, a US company that became the world’s second largest corporate inversion when it decided, in 2016, to relocate to Ireland after its merger with Tyco to avoid paying US income taxes. The company was delisted from the Fortune 500. It is also unlikely to receive assistance from the U.S. government during the virus crisis, should it need it. But that doesn’t seem to matter because it can always go, cap in hand, to the Bank of England and receive a virtually interest-free £370 million loan.
As previously mentioned, in order to qualify for the BoE’s CCFF program, you need to be deemed to provide “a material contribution to the UK economy.” But it’s far from clear what that actually means. Given the prevalence on the list of companies that pay little or no taxes in the UK, it’s clearly not meant in fiscal terms. Close to 30% of the money so far disbursed by the BoE has gone to companies that are owned by a tax haven company or a tax exile, or are themselves incorporated in a tax haven, according to the investigative think tank Taxwatch UK. They include:
- Baker Hughes (£600 million), a subsidiary of General Electric (via a Bermuda holding company). GE is embroiled in a £1 billion tax dispute with HMRC over unpaid taxes going back to 2004.
- Chanel Limited (£600 million), which is owned by Litor Limited, a company based in the Cayman Islands.
- CNH Industrial Limited (£600 million), a US-Italian company spawned from a merger between Fiat Industrial and Case New Holland, which is ultimately controlled by the Agnelli family, one of Europe’s wealthiest dynasties. The company faces no tax liability in the UK since its UK operations are loss making. However, its presence in the UK allows it to receive £600 million from the BoE, which is more than 50% of the company’s £1.1 billion revenues at its Basildon plant.
- Telefonica Europe B.V. (£200 million) and ABB Finance B.V. (£400 million), both of whose holding companies are based in the Netherlands while most of their revenues are generated elsewhere.
Another firm that has been helped out by the BoE is Chemring, a UK company operating in the defense sector that admits in a press release on its website that it referred itself to the Serious Fraud Office in 2018, triggering a criminal investigation into bribery, corruption and money laundering. As confirmed by the SFO website, this is still an ongoing investigation. And while it goes on, Chemring has received £50 million from the BoE.
Below is the full list of all the lucky large companies that have been helped out by the BoE over the past ten weeks. Given the BoE still has £50 billion of funds available to lend through the scheme, the list is likely to grow a lot larger in the coming months. The amounts show represent the outstanding commercial paper (CP) held by the BOE.
In total, 152 businesses have been approved to receive support from the BoE’s CCFF via these CP purchases. But 99 of them have no outstanding CP with the CCFF. In addition, another 99 businesses have applied to the CCFF and, as the BoE says, “have been approved as eligible in principle but have yet to be fully approved for CCFF issuance.” So there are more coming. But here are the 53 with outstanding CP at the BOE:
See the full list on Wolf Street