Inside track by Mark Wingett About two months ago, before the Eurozone plunged into another crisis, there were signals that the banks were gearing up to end the “extend and pretend” period that had dominated lender behaviour since the recession began. The feeling from conversations with banking groups was that after three years they had got to grips with the multitude of assets and debts that were taking up space on their books and were ready to either back current management or bring businesses to the market, fully aware that many would continue to lose value if kept underinvested. Three weeks ago, there was a flurry of activity in the hotel sector, which many felt could be the prelude to the banks releasing assets into the pub and restaurant marketplace they had sat on for over two years. However, the current nervousness and uncertainty in the economy has again put everything back into a holding pattern. We are now firmly in the middle of an economic cycle, three to five years away from the start of an upturn. But we are still asking the same questions we were faced with at the start of 2010 and this year. Can the banks afford to hold onto under-invested assets until the much hoped for upturn finally sails into view? The answer surely is no. Many banks it seems are still deciding whether they believe in the future of the businesses they hold — and in their ability to deliver sufficient returns. As Bill Priestley, of private equity group LGV Capital, which backs the 70-strong Amber Taverns, recently said: “I think pretty much every bank owns pub companies. Banks don’t want to own pub companies but they found themselves owning them and have put up with it because they realised that if they sell they are going to sell at a loss.” At the start of this year the questions were again posed as to whether we would see some bank-driven consolidation of assets. Would be see some portfolio break ups? These questions are still relevant now. The last 10 months have seen no easing of the transactional logjam or the always expected wave of administrations. However, it seems that this state of play may be about to change with banks being forced to become more proactive to secure some kind of return on investment. Lloyds has seemingly been more decisive than its counterparts in sorting through its assets and debt position, which maybe in part due to the legacy of its ill-fated merger from HBoS. Take its relationship with Admiral Taverns. After a period of assessment it swallowed a £600m debt-for-equity swap at the 1,300-strong tenanted pub company and followed this by supporting the acquisition of the 189-strong Piccadilly Licensed Properties estate. It is thought that the bank will also act decisively in making a decision on whether to stay in or pull out of the currently troubled Orchid Group, with speculation mounting that it along with GI Partners will exit the c.300-strong managed pub operator leaving Deutsche Bank as the sole owner. The recent second restructure of Paramount Restaurants, which saw its debt reduced from £64m to £25m, after coming to a new agreement with its banking group, Barclays, HSBC and the Royal Bank of Scotland (RBS), has at least given the operator of the Chez Gerard and Brasserie Gerard brands a fighting chance of trading on and probably more helpfully a lot more attractive to suitors. Allied Irish has also started to make moves towards clarifying its asset position. Although it secured a refinancing deal in 2009, the Allied Irish-backed Barracuda, which still has debt of over £150m, is now very much in play. At the same time Allied Irish stable mate TCG has seen its estate fall from over 150 sites to around 90. It’s not a leap of faith to think that both are ripe for some form of TDR Capital-led consolidation. Then there are the estates being operated under management companies and in administration, such as Pubfolio and Pubs ‘n’ Bars, while rent dates are being met and debt is being serviced these will remain as they are, but what happens when household incomes get squeezed further? As for that perennial favourite, the “RBS 900”, the end of S&N’s current management agreement in the middle of next year has in many eyes, placed a deadline on some or all of this estate finally changing hands. A look through the assets still on the banks books, treading water, under invested and burdened with significant levels of debt, suggests 2012 could be the tipping point that sees a number of portfolios brought to the market in some form or other. Left any later and the banks might as well give them away.