The Turmoil Test
Discussions continue in the media about financial institutions capitalization levels. A recent discussion about having to have the resources to be able to endure one month of turmoil had Bruce and me shaking our heads. “Turmoil” lasts longer than one month when a government guarantee is not available. We have the scars to prove it.
At the height of the GFC many Investors came in to see either Bruce or me. In essence they wanted to make sure we were still here and working on their investments as so many other operators had simply disappeared.
“While “selling” loans may not be the optimum for profitability
I sleep easier knowing that GPS is a robust business which puts
the interests of its Investors ahead of its own.”
I am very conscious of the level of confidence Investors show in entrusting their hard earned monies to us and it is the culture which I have developed at GPS that we are diligent in the management of their investment.
Accordingly, I have set up the GPS business so we have recurring income to meet expenses should there be another period of “turmoil”. The GPS cash-flow provides for at least 12 months. I have developed the business so that GPS is not reliant on application fees to pay wages and for there to be adequate recurring income and other resources available to facilitate an orderly wind down of the loan book, should it be necessary. Lending because you have to lend, rather than because you want to lend, is bad practice. Another test I run on GPS is my “stress test”. This is essentially removing all new lending from the funding cash-flow and ensuring that no increase in funds under management is required to fully fund or settle loans. These tests go well beyond the legislative requirements for GPS. Access to additional funding lines assists GPS to pass the self-imposed tests. While “selling” loans may not be the optimum for profitability I sleep easier knowing that GPS is a robust business which puts the interests of its Investors ahead of its own.