The Southern Cross card game is now being watched by millions on TV. The Chairman was forced to come out into the public gaze and submit to an inquisition by John Snow on Channel 4 News. Meanwhile, the newspapers were having a feeding frenzy by re-exposing old news and declaiming the apallingly rash lending of the financial institutions.
What a pity they were so disinterested a few years ago when the deals first were being struck. Could it be that they were all mesmerised by the glamorous profits being made by the vulture capitalists and the astronomical bonus’s being “earned” by some of our well known high street banks ? As Gordon Gekko said in the 1987 film “Wall Street” —- “greed is good”.
Who wasn’t greedy :-
? the shareholders in the banks who benefitted from the high dividends ;
? the savers in the banks who got higher rates of return before the crunch ;
? The investers in venture capital funds who were aided by tax-free ISA’s ;
? The Local Authorities who were able to hold down care home fees thanks to their near monopoly purchasing power, and the rapid growth of the commercial residential care companies ;
? the relatives of residents who secured cheap care provision and didn’t worry too much about the quality of care ;
? the toothless regulator ( now the Care Quality Commission ) who accepted poor quality and turned a blind eye to financial viability ;
? the Governments of the day ( from the late 1980’s onwards ) who were all pleased to see capital pouring into the “business” of care of the elderly so that public money was not required .
We all had a hand in the game, one way or another.
The final hands of the Southern Cross poker game are still being played out :-
Southern Cross Management have now unilaterally decided to reduce rents by 30%. This must be the last card they have to play and it probably signals the end of this management team in the near future.
The Landlords have now had their stonewalling bluff called, but with loans already extended to 30 years they have no real room for manoeuvre. This means they will have to face a significant down-valuation on their loan book. The banks will be large enough to accept this unpalatable medicine ( Lloyds will again be bailed out by it’s taxpayer shareholders i.e. us ). Some of the landlords (NHP and Four Seasons ) are themselves already in a precarious position and further damage to their balance sheets might well tip them into bankruptcy.
The Care Quality Commission are out of the game now. Their only remaining card was to close future admissions to Southern Cross homes and that has probably already happened by default through the public and Local Authorities voting with their feet. The CQC has no cards and no credability left. Though no doubt they will try to hide behind their recent change of name and blame the regulators of the past.
The Government which hitherto has been playing a waiting game, is now having it’s hand forced by the glare of publicity. A spokesman for David Cameron in a carefully worded statement of platitudes and hollow promises said “It may not be in the interests of residents to move them” What a remarkable insight that is ! He went on to say ” we will do what we need to do to ensure there is effective protection for any one affected” Presumably he means all 31,000 residents, but not the bankers and other landlords. ” We are clear that we are putting the interests of the residents first” Bull**** ! They haven’t done that for the last six months of worry that the residents and their relatives have already suffered.
So what card playing options does the Government have ?
- It could step in with the £100 million investment that Southern Cross has been seeking, perhaps in exchange for a controlling in the company. In practice this would be a small price to pay if it would resolve the problem. But is it enough ? Will it trigger similar requests from other hard pressed providers ? And will it mean stepping from the frying pan into the fire ? I very much doubt if the Government will want to do this — it won’t want to get its hands dirty even if this would reassure the residents.
- It could broker a deal for another provider to step in and save the day — ? BUPA or a national charity ? Housing 21, Anchor or MHA. They would need to be able to fund this without recourse to further borrowing, but they could be given grants through the Homes and Communities Agency.
- It could sweeten the deal with the promise of higher funded rehabilitation beds as suggested in my earlier blog ( see Southern Cross Poker Game – 5th April 2011 – ref. Ace of Diamonds ) Probably only BUPA has the financial strength and management and nursing skills to do this.
None of this will happen until the current landlords accept lower rents or go bust. So for the time being the Government will continue to sit on its hands, unless publicity forces it to act sooner.
In the meantime with the approaching publication in July of the Dilnot Commission report on funding care and support, the landlords might be tempted to hang on for a more favourable climate in which to settle the deal.
Government will equally be happy to wait so that any parliamentary discussion is cut short by the summer recess. Best to do such unsavory deals behind closed doors.
The Poker Game is far from over.