Letters - Unlikely bedfellows: banks and accountancy firms make odd couples in consolitation market
Banks and accountants make unlikely bedfellows. (Banks join consolidation predators, page 1, 18 October).
I disagree with Gordon Gilchrist’s view that banks are likely to become accountancy consolidators. During our initial search for funding for the Jobtel Consortium consolidator we approached several banks but came to the conclusion that the problems were too great.
The largest problem relates to an obvious conflict of interest. The accountant will be called upon (either in the regulated or unregulated side or both) to carry out work relating to the past or future profitability of the business.
But that is knowledge that is of vital importance in arriving at the risk attaching to the clients’ loans and overdrafts which still remain the core of a banks’ operations.
You can create as many Chinese walls as you like but if it is in the client’s interest, for example, not to reveal monthly trading figures which by its loan agreement with its bank it has to disclose what happens then? And how could a bank ever prove that its banking arm turned down a crisis loan independently of such poor figures? This bearing in mind that accounting staff, whether or not they are working on regulated work, (as staff are rented out to the regulated side) are probably employed by the consolidator.
So that’s too close for comfort and would create a muddled situation of confusing loyalties.
The consolidator model is relatively simple. Additional outside capital is injected which has to be serviced. Unless the former partners are to reduce their incomes that servicing cost must come from increased profits.
This is usually thought of as being generated by additional services to the same clients.
So if the banks cannot use the access to the large accountants’ databases and cross sell because of this conflict, there would be no point in the acquisition.
There are other financial type services however that would be quite compatible and of course there are other ways of gaining additional profits – for example by gaining a number of new clients probably through higher profile and targeted marketing.
Julian Hamilton, Jobtel