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Carillion supplier finance drives £60m Santander writedowns

Carillion’s collapse contributed to a £47m year-on-year rise in loan writedowns at Santander in Q1 2018.

The bank’s UK arm recorded credit impairment losses of £60m in the first quarter of the year, up from £13m in the same period of 2017.

Santander said Carillion’s collapse, combined with losses related to a global corporate banking customer, was a major contributor to the loan writedowns, although the bank refused to disclose exact figures.

Construction News understands the Carillion writedown was linked to the supply chain finance initiative Santander provided the contractor.

This arrangement allowed Carillion’s suppliers to present invoices to Santander for payment before the due date in exchange for a 2 per cent fee.

Santander would then collect the full value of the invoice from Carillion on the due date.

Invoices received up to 12 January – the Friday before Carillion collapsed – had been honoured, according to the bank.

The new losses add to the £203m writedown Santander revealed in its results for the year to 31 December 2017, which it said was “primarily related to Carillion”.

This covered the bulk of its exposure to the failed contractor and the bank said at the time that future provisions would be “immaterial” to the business.

Santander’s UK business reported a £415m pre-tax profit in the first quarter, down 21 per cent from £525m in the same period last year.

Former Carillion chief executive Keith Cochrane has said changes made by Santander and the other EPF provider RBS in December and January made it harder for the contractor to trade in its final weeks.

Santander reduced the cap on its EPF from £150m to £117m and stopped automatically accepting invoices, requiring Carillion to manually approve them.

The bank said the move gave it “greater oversight of the invoices and liability before paying” and that it continued to honour invoices.

Construction News understands that the value of invoices processed did not approach the £117m cap.

Santander, along with Barclays, HSBC, Lloyds and RBS, were asked by Carillion on 10 January to provide an extra £360m in finance to keep the firm going, which the lenders rejected.

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