Lenders are said to be signing risky
deals again leaving brokers wondering why they were culled in the
first place. Fred Crawley reports
It is clear by now that a broker
market based on a short-term, transactional business philosophy is
dead and gone.
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The balance of power in broker-funder
relationships has shifted, and introducers can rarely pick and
choose between funders based on their response to individual deal
proposals. To put it plainly: if you have a funder, you do whatever
you can to stick with it.
At the same time, brokers are not powerless –
lessors know that many of the UK’s best leasing sales professionals
are active in the broker sphere, since most of them are former
employees of those funders, who moved to make the most of regional
or asset-specific expertise.
Equally, the SME market has grown used to
using brokers to source leasing finance, in much the same way as
they would look to an IFA for a pension or a commercial insurance
broker.
But when Hitachi Capital left the broker
market recently, it cited a search for “more profitable, less risky
and more sustainable” business. By implication then, does this mean
that broker business is unsustainable, unprofitable and risky?
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By GlobalDataNot necessarily. David Mogg, new asset finance
representative at the NACFB and director of brokerage First Capital
Finance, notes that many funders have used this justification to
leave the market, while still writing some fairly low quality
deals.
Mogg said: “Frustratingly, we have seen
numerous recent instances of agreements being written by the direct
sales forces of bank-owned operations that have left the market, at
ludicrously low margins in much the same way as they were prior to
their troubles.
“The fact remains that good brokers are able
to introduce good business with lower costs and healthy
margins.”
ING Lease obviously still believes this – it
just showed its popularity among brokers by picking up NACFB awards
for ‘Lessor of the Year’ and ‘Vehicle Finance Provider of the
Year’, and is virtually certain to stay in the market.
Part of the reason for this is ING’s relative
isolation as a commercial bank in the UK – unlike Lombard or
Barclays, it has no business lending operation to seek direct sales
from, and has set up its stall as an introducer-fed business.
Indeed, while ING Lease on the continent has
incorporated factoring and ID into its business in recent years, it
has “no plans” to expand its product range in the UK arm, which is
possibly too heavily specialised in broker-led asset finance to
make such a change.
That said, the model is not perfect – in
explaining a 61 percent year-on-year profit drop for ING Lease as a
whole, the Dutch banking group listed high loan loss provisions in
the UK as a major factor. Whether this is down to the deeper
recession in the UK or the broker model itself is a question best
answered by ING.
One thing ING has definitely succeeded in is
fostering a sense of trust with its brokers, a factor that other
lenders may have lacked even before their exits from the
market.
Mogg commented: “We have placed the majority
of our business with ING for many years, prior to others exiting,
simply because they are able to deliver a high level of service to
us, which we can pass on to our customers – it is that simple.”
“For the broker system to work we have to
remember that, ultimately, there is a customer at the beginning of
the chain and that the customer has a choice – even though this is
not as great as it once was.”
ING is often spoken of as making brokers feel
as if they are a part of its business in the long run, rather than
just ‘fair weather friends’ on a deal-by-deal basis. Presuming
other volume lenders do eventually return to (or debut into) the
market, it seems that brokers will be expecting a much closer
working relationship.
Richard Hoggart (see comment, right)
is head of DSG Financial Services – a broker in the world of
vehicle finance where more funders have remained active through
introducers. He feels that a risk-sharing joint venture model is
the way forward in his sector, and possibly even more so in the
heavily depleted asset finance market.
