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Fortress Balance Sheet

Veteran international investor John Corey offers his latest thoughts

JP Morgan Chase did much better than many of its banking competitors during the Global Banking crises (2007-2008). They made several strategic purchases and came out on the other side as a more prominent, more influential firm. A few of their competitors went to the wall. In my USA lingo, I would say, Lehman, Bear Sterns, and others’ crashed and burned’.

What made the difference?
Multiple independent sources, plus JP Morgan Chase, all cite the same thing. The bank had a ‘fortress balance sheet’. Translated into simple English, the firm had more capital than many of the competing firms. They ran a more conservative operation. Not so noticeable and more important was they knew their numbers because their management reporting worked.

Like many of the large, multinational banks, Chase had grown through acquisition. One way the bank was very different was in the area of integration. Chase had a strong track-record for taking the time to integrate acquisitions. In banking, this means making sure systems acquired were either the basis for the new, merged bank, or simply decommissioned. The nightmare starts when you keep both sets of systems. Once you do that, you add the consolidation of two sets of reports to the daily management processes. You effectively create a third system, so more room for errors and omissions.

When a storm hits, you need to know what you have, what you can do, and what is going to make a difference. That is not possible when the management reports and your business KPIs (Key Performance Indicators) are a mess or non-existent.

How is your bala nce sheet?
There are many ways to invest in property if you focus on the residential sector. Some strategies work well - some of the time. If you want to focus on strategies that are sensitive to the market, you need to be nimble and able to exit when ‘crunch time’ comes along.

Guaranteed rent for serviced accommodation is one such strategy. Who would have predicted that discretionary travel would stop? None of us is the honest answer. If you are ‘all in’ with Rent-to-rent-to-serviced accommodation (R2R-SA), then you are facing a complete meltdown of your business unless your balance sheet can handle it.

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