Credit watch for officials over Covid loans as pandemic clouds persist

According to the head of the state body, he oversees a part of the portfolio that is provided in terms of the emergency scheme.

Charles Donald, head of the UK Government’s investments, said he would play a ‘monitoring role for the Treasury of large exposures’ in the government’s loan portfolio until the end of March 2022.

This includes analyzing the “potential pressure that will be exerted on the expected repayment plan. This is what I would call credit watch, ”he said.

“We just keep a very close eye on it,” he added. “Who knows what will happen next in terms of the pressure of the next phase of the pandemic on different sectors?”

Donald said the management of the Covid loan portfolio is focused on two of the emergency schemes: the Bank of England’s Covid Corporate Financing Facility and the Coronavirus Large Business Interruption Loan Scheme, with government guarantees of up to 80 percent.

UKGI has also helped with the Treasury’s ‘Project Birch’ plan to take an interest in critical companies whose operations have been affected by the pandemic.

In the end, only one company benefited: the steel producer Celsa in South Wales, which got a senior debt facility. But Donald said that does not reflect the number of inquiries from companies seeking government assistance. In almost all other cases, according to him, a solution was found in the private sector.

Donald, a former banker of Credit Suisse who became CEO in March 2020 when the pandemic took hold, has confirmed that the scheme has ended. ‘There is an enormous amount of good that has been done, not necessarily visible. Often you find that there are other solutions. ”

The UKGI’s bigger role pre-pandemic was the management of a £ 945 billion portfolio of wholly and partly owned state-owned enterprises, including NatWest, Channel 4, the post office, land register and Urenco, the nuclear fuel supplier.

It provides some knowledge in the private sector, including bringing in outside experts, to advise and implement policies for government departments.

Pedestrians give a Natwest Group logo
Donald has indicated that he expects further sales of NatWest shares by the UK government this year © Jason Alden / Bloomberg

Donald said in an extensive interview with the Financial Times that he expects further sales of shares in NatWest this year, given the strength of the stock markets and the removal of curbs on dividends.

In May, UKGI sale £ 1.1bn in NatWest shares, the second sale in two months. This reduced the government’s interest to less than 55 per cent, 13 years after the bank, then known as the Royal Bank of Scotland, was nationalized and brought under state control during the financial crisis.

Asked about further sales of NatWest shares, he said: ‘I would expect that, but it is always subject to conditions. After a bit of silence, we have made some progress this year. Our commitment is to ensure that we monitor the opportunities to sell on a value-for-money basis at all times. ”

He said it was ‘quite a healthy market’ and the removal of the ‘handrails’ limiting dividend payments by UK banks was also ‘very positive’ for potential returns.

UKGI will complete the sale of other assets from the era of the financial crisis previously owned by Bradford & Bingley and Northern Rock under the UK Asset Resolution scheme.

The British government is seen by some in the business community as more interventionist, partly after building up debt and stocks to support businesses in the pandemic.

This week, the ‘Future Fund: Breakthrough’ was launched to invest up to £ 375 million in UK businesses, illustrating that the government wants to broaden the state’s exposure to promising private businesses.

“The pandemic has clearly created a unique challenging situation where support was needed,” Donald said. ‘There’s partly a coincidence of timing around many of these things. . . so it’s definitely busier. ”

Donald said the UKGI was also setting up a unit to better understand the government’s contingent liabilities – figures for the 2018/19 financial year set the amount at £ 377.5 billion – with the aim of exposing to reduce.

One would hope and expect that consequently these contingent liabilities will not necessarily be contained in the end, but at least be better understood, so that the taxpayer ultimately does not have such a significant exposure as [they] maybe now. ”

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