Recession can be a time of opportunity

Oct 17 2009 by Iain Laing, The Journal

Are there opportunities as well as worries for investors as the downturn continues? Alexander Dickinson, partner in Newcastle-based law firm Dickinson Dees, takes the long view.

AS the UK battles to emerge from the recession, we are all wondering whether there is an end in sight? Retail sales rose in July, while money supply figures suggest the Bank of England’s quantitative easing programme may be working, adding to a growing sense that the economy is past the worst.

However, whilst September’s newspaper headlines suggested that the economy was growing once again, the rate of growth will mean that it will take several years before the economy returns to its pre-recession size.

The grim fact is that unemployment has surged to 2.4 million and the British Chambers of Commerce continue to predict that it will reach 3.2 million by mid 2010.

There’s no doubt that 2009 continues to be a painful year for some, but is the recession fated to destroy small businesses, leaving business owners on the brink of financial ruin?

The answer is much more likely to be “no” if individuals are ready to move quickly to deal with any crisis or opportunity. It is true that the economy has moved on from the autumn 2008 crisis. In a few short weeks we were hit by the bankruptcy of Lehman Brothers, the collapse of the Icelandic banking system and the rescue of several UK high street banks and building societies by the Treasury. Businesses, investors and homeowners seeking to borrow money in the last quarter of 2008 and the first quarter of 2009 found it almost impossible to do so. For those who were renewing existing loans, bankruptcy loomed and several high street names went out of business.

The next couple of years will present equally challenging situations for people seeking to renew loans. Although borrowers are enjoying exceptionally low interest rates, the terms on which loans are renewed will be nothing like as generous. Interest only loans are probably a thing of the past for many individuals, with banks demanding some form of capital repayment.

The good news is that, historically, recessions have created great opportunities as well as threats. “High performing” companies will be looking at ways to strengthen their position and emerge from the downturn even healthier than before. Others may see this as a chance to gain some ground on a market leader who has over-extended themselves.

One need only look at the success enjoyed by Kelloggs on the back of the Great Depression of the 1930s (when their increased advertising spend during the recession helped them gain market dominance for the next 60 years) to appreciate the importance of forward planning.

Those who have been brave enough to return to the market have seen significant growth in their portfolios.

Commercial property has yet to see any recovery, but as more stock comes to the market, possibly as a result of banks tightening their lending requirements, opportunities will arise. Those investors with cash and well-ordered finances will probably have the opportunity to acquire premium assets at yields not seen for many years.

There has never been a better time to make sure your assets are protected for future generations, leaving you with the freedom to go out and make the most of what the recession has to offer.

The good news is that, historically, recessions have created great opportunities