Coutts, Bank of America and a
little-known trust company based in the Dutch Antilles have all
recently launched businesses dedicated to financing assets for the
rich and famous. Brendan Malkin discovers how all this is giving
fresh opportunities to experienced lessors.
Go deeper with GlobalData
It is not just the rich and famous who have been hit
hard by the recession.
While millions have been wiped-off the value of
their companies by the downturn, the people who arrange the finance
of their yachts and jets have also been drastically affected.
Many have lost their jobs as a result of the
recession and have been surviving on not-always-generous redundancy
payouts.
The fortunes of some of these bankers, however,
at last seem to be shifting back in their favour as UK and
international banks, as well as other financial entities, once
again focus their attention on the exotic finance market.
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By GlobalDataBank of America (BoA) is one player doing
exactly this. It is currently in the process of ramping-up its jet
finance arm, particularly in jurisdictions where its presence on
the ground to date has been fairly limited – namely Europe, the
Middle East, Africa and Asia-Pacific.
Building business
The man spearheading this growth is
Alex Badran, a seasoned corporate jet financier who has worked
previously for Lombard, Barclays and, most recently, Cessna
Finance.
With 30 years of asset finance experience under
his belt, Badran looks more than capable of being a success in his
new role. He is likely to be joined at BoA by several other leasing
professionals, some of whom are expected to be big hitters in the
jet finance market.
Notwithstanding this, Badran, who now reports
to Phil Perkins, head of asset finance origination for EMEA and
Asia-Pacific, still has quite a job on his hands.
A key part of his role will be to provide the
large number of super-rich customers at Merrill Lynch, the
investment bank BoA merged with in 2008, with access to jet
finance. No mean feat, particularly given the scale of Merrill’s
customer base.
Another challenge he faces is that he will be
building-up his business from a relatively small base.
Until now, non-US jet finance business has been
run out of the bank’s Frankfurt office by Toennies von Limburg. The
small-ish scale of this operation is in sharp contrast to the
vastness of BoA’s US operation, which makes up the bulk of
the bank’s $7bn (€7.8bn) jet finance portfolio.
Badran will also have to keep up with BoA’s
well-known pace of expansion. Ever since 2004, when the aviation
finance unit of BoA’s private banking arm merged with BoA Leasing
Corporate Aircraft Finance strategic business unit to form the
bank’s new Corporate Aircraft Finance Division, the jet finance
business has been growing rapidly.
Back then, according to public records, it had
$4bn of assets on its books – compared to $7bn today – and also 100
fewer clients.
Yet while there is still a long way to go,
there are already signs that business is picking up for the bank’s
jet finance arm. In recent months, BoA signed a strategic funding
alliance with Avjet Corporation. Although based in California,
Avjet also has offices in Dublin and Nice.
Other moves afoot
Across town from BoA’s Canary Wharf
headquarters, in brand new offices on Wigmore Street in London’s
West End, other moves are afoot which are also likely to have a
significant impact on the expanding world of exotic asset financing
– which with 320 players worldwide, according to the Global
Business Jet Yearbook, remains vast in scale.
Ex-Fortis employees John Stephens and Alex
McBarnet are due to start financing their first assets as directors
of the newly formed United Marine and Aviation Limited.
This business is very different to the one
being forged by BoA.
Its parent, rather than being part of a vast
US-based banking empire, is a subsidiary of a little known
Dutch-based group, United Trust. United Marine will also work in
association with United Trust’s sister organisation, United
Bank.
Supported by such expertise, United Marine will
not only be a financier of jets and yachts, it will also be able to
provide the necessary offshore and tax expertise so often needed
when dealing with the super-rich.
McBarnet, United Marine’s managing director,
said the business’ marrying of banking and trust services is
“unique”.
“As far as we know, no one else is doing this,”
he said.
Breaking new ground
Both McBarnet and Stephens, who is
United Marine’s head of marine and aviation finance, had experience
of joining banking with trust services during their previous time
at Fortis, the former as head of the yacht and aircraft group of
Fortis Intertrust, and the latter as director of Fortis Lease UK’s
London-based jet and yacht arm.
United Trust got to know both McBarnet and
Stephens during their Fortis days, and chose them for their
knowledge of the industry and their well-thumbed contacts book.
Stephens made clear that they will source
business from a range of different contacts, and are far from being
reliant on United Trust for customers.
“Our route to market will be through our
contacts,” Stephens said.
These include “lawyers, fiduciaries and
manufacturers”, he added.
Fortis Lease UK signed around €600m of business
over a four-year period, although it is likely growth will be
slower at United Marine. However, this is not to do with a shortage
of business, he insisted.
“It’s because we choose not to do so. We want
to do business we feel comfortable with,” he explained.
Both are confident that there is more than
enough business to go round, in spite of the recession. At Fortis,
Stephens said, “for every deal we signed there were 15 we
rejected”.
Deal sizes are likely to be smaller at United
than they were at Fortis.
“Our target market is between €10m and €25m but
will of course consider both smaller and larger transactions,”
Stephens said.
By contrast, at Fortis he signed deals worth as
much as €100m, although these were not common.
Given that jet and yacht finance was the most
profitable arm of Fortis Lease UK, it seems the opportunities for
making decent returns at United are certainly real enough.
All this begs the question as to why exactly
Fortis Lease UK, which is run by Paul Burgess from Glasgow, decided
to close down Stephens’ unit.
While Stephens himself is tight-lipped on the
subject, industry observers suggested that the main reason was that
the London-based jet and yacht business was simply based too far
away from Fortis Lease UK’s main operations hub in Scotland, which
specialises in much smaller, low-value assets.
Scaling up
As well as BoA and United Trust, RBS
private bank Coutts is also committed to ramping-up its jet finance
business.
Like BoA, Lombard, the asset finance subsidiary
of RBS, also wants to increase its jet finance offering to the
private banking clients of its parent, and it was recently given a
mandate to do exactly this.
“The mandate allows Lombard to work with RBS
Wealth Management and Global Banking & Markets businesses in
certain jurisdictions where these customers are based,” the bank
said in a recent statement to Leasing Life.
This move, which coincides with plans by
Lombard to scale-up the average size of its deals in order to
attract larger corporates as clients, means its jet finance
division is now chasing deals worth up to £40m apiece.
Previously its market ranged from very light
jets up to aircraft worth in the region of £20m.
