Banks Retailers Prop Up Armaguard But Only Until Q3.
Banks Retailers Prop Up Armaguard – Australian banks and major retailers have agreed to prop up struggling cash in transit service provider Armaguard, but the $26 million cash injection won’t last until the end of the year.
The planned emergency funding will proffer the company tens of millions in financial support to continue carrying cash until Q3 but the banks, Wesfarmers, Coles, Woolworths and Australia Post still haven’t heard back from Armaguard on the deal.
Coles is sufficiently concerned about the possibility of Armaguard’s collapse it is hoarding cash in stores rather than risking it being locked in Armaguard trucks should the the business be placed into administration over the Easter break.
The issue for banks and retailers is that they need cash carry services but don’t want to pay more for them than they used to. And the issue for Linfox-owned Armaguard, which bought struggling competitor Prosegur last year, is that its business model has been broken by an all-encompassing digital payments system.
Banks Retailers Prop Up Armaguard
Should Linfox decide to shutter Armaguard, the banks and retailers will be forced to provide cash carrying services themselves, with all the complexities of setup, staff training, vehicle procurement and insurance that such a specialised service requires.
This latest offer of support is designed to help Armaguard operate until a long-term solution can be found but what that long-term solution is going to be remains unclear.
The issue is dire enough that the discussions are being led by the Australian Banking Association under an authorisation granted by the Australian Competition and Consumer Commission. Meanwhile, the Reserve Bank, which regulates the payments industry and prints cash, has also been forced into the discussions.
A key issue for the banks is that there’s a cross guarantee expiry date between Armaguard and Linfox that rises in the first week of April – at that point Armaguard can enter voluntary administration without exposing Linfox to contractual obligations.
Banks Retailers Prop Up Armaguard
The short-term funding offered last week is lower than the $190 million over 3 years Armaguard told the industry it required to operate profitably late October 2023. This new funding may encourage Linfox to continue supporting Armaguard until deeper into the year. But it may simply clarify hard business decisions.
In December, Reserve Bank governor Michele Bullock suggested a co-operative cash in transit model might be explored, but it would certainly depend on significant government funding, and would cost the banks and retailers a lot more that they were paying Armaguard.
If the managers of Armaguard consider their options in a strictly prudential light – with the near total collapse of cash payments occurring in a very short space of time and certain to continue – it’s possible we may see the end of Armaguard within the month.
At the same time, it might be possible for Armaguard management to play brinkmanship hard enough to carve out a guaranteed niche supplying a service no one wants to pay for but nobody can do without – least of all the Federal Government.
Breaking news this afternoon – Armaguard has rejected the offer that would save the company from insolvency but what its intentions are remain unclear – more here.
You can learn more about Armaguard here or read more SEN news here.
“Banks Retailers Prop Up Armaguard But Only Until Q3.”
