We’ve seen multiple stories recently about the lack of trade financing during the credit crisis. Shippers who use letters of credit are finding that some of their buyers are not willing to accept them if the issuing bank is in question. But the market always finds a way to get things done (via WSJ):
As the financial crisis chokes credit and corporate profits, specialist trade-finance firms have it so good that they are turning away potential customers.
These financiers include small hedge funds and boutique investment firms, which specialize in providing loans that help grease the wheels of the $14 trillion market in global trade. They’ve stepped in to fill some of the void left by commercial banks that left import-export businesses high and dry when they began pulling credit lines several months ago.
“Everyday we get three to four phone calls and emails from companies looking for loans,” said Mead Welles, president and founder of Octagon Asset Management LLC, a New York-based hedge fund that focuses on trade loans. “We simply can’t fund them all.”
Is there as much trade financing as there was? No, but there also isn’t as much trade. The point is that the market always finds a way. If there is a demand for trade financing and banks are not willing to provide it, someone else will.