Was the demise of Thomas Cook preventable if the UK Government had offered further support?
Trial Blog - 17/10/2019
As it hit the headlines on the 23rdSeptember that the household name Thomas Cook had collapsed, it sent the country into disarray as holidaymakers feared for their money tied up with the company. With a reported £500m tied up within the company when it collapsed, the priority for many was what the current situation was regarding their money and their booked holidays through the travel company.
Was there more that we could do to save this company loved by many? The story of its collapse brings into question the reasons for its failure, corporate greed? Executive pay? And potentially its account reporting practices, which may have disguised the actual difficulties that the company was facing. The question is, should the UK government have done more to assist in the recapitalisation of Thomas Cook. It is said that up until the very last minute the company had shareholders and lending banks on board to help with the recapitalisation of the corporation with the proviso that there would also be additional security from the UK government, which was later refused.
Executive pay became a huge factor that was focused on, however Mr Fankhauser defended that they often received a percentage of their pay as shares, now nil and void of any value at all…a selfless act really.
However, this is a situation comparable to the crisis that Northern Rock experienced after the financial crisis, where the UK government intervened to nationalise the bank and prevent its failure. Mr Fankhauser believed that the reason the UK government refused to offer support was to avoid setting precedent, which understandably is key, but have we seen the full repercussions yet as to how the demise of Thomas Cook has fully impacted the stakeholders yet?
Would it have assisted in damage control if they had saved Thomas Cook? It is said that numerous banks, including Barclays, Morgan Stanley, RBS and Credit Suisse have all faced write-downs up to £1.8bn due to the failure of Thomas Cook. It may have been more useful if the government had assisted in the recapitalisation plan that Thomas Cook had in order to prevent the knock on effect that occurred when the corporation collapsed.
If we analyse Thomas Cook; it was functional, providing a consumer service to thousands of people and also had millions of pounds tied up of within it’s company that would be owing back to customers if it were to collapse. Clearly Northern Rock was on a much more extreme level with the amount of consumer’s money it had tied up, however it was practicing in an incorrect manor and offering mortgages and loans without the appropriate lending process being inplace, so why should a questionably practicing company be saved? And why should a bank whom are being irresponsible and adding to their crisis by offering unsustainable products be saved? The banking industry is undoubtedly an incredibly important part of the economic infrastructure and so the assistance from the government is understandable, but can we keep allowing huge companies to go bust with no help at all?
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