Lombard’s managing director
Alex Baldock is hardly afraid of change. It was he, after all, who
spearheaded his company’s recent integration into its parent, as
well as its shift to signing bigger-ticket deals. But how is he
coping with probably his greatest pressure yet: to make Lombard the
engine of growth for SMEs? Brendan Malkin goes behind the scenes of
one of the world’s largest leasing companies.
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Every minute is precious
in Alex Baldock’s world. After discovering that I had not arrived
precisely on time for our 5pm meeting – I was delayed by a
particularly vigilant security person at Royal Bank of Scotland’s
(RBS) reception – he immediately told one of his public relations
colleagues that he would be back in eight minutes precisely, before
he vanished into yet another meeting.
When finally I made it to the room, the PR
woman told me politely but firmly that he would only have 15
minutes to talk to me.
Baldock’s preoccupation with timing every
minute of his day is hardly surprising given the pressure he is
under. As well as heading up Lombard, one of Europe’s largest
leasing companies, he is also a senior manager within the Royal
Bank of Scotland Group, one of the most embattled banks in world
history.
There are also other important matters playing
on his mind. Around the time we met, Richard Priestman, one of the
best-known directors of Lombard and also a close associate of
Baldock’s, announced plans to step down from his role as head of
the leasing company’s corporate arm in June.
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By GlobalDataGiven Priestman’s many years of leasing
experience, and his in-depth understanding of Lombard’s business,
finding someone to replace him will not be easy. The timing of
Priestman’s departure could also have been better, as it coincides
with Baldock’s plans to continue growing Lombard’s corporate
arm.
I caught up with the youthful Baldock (he is
aged 39) just two days after the UK government released its Budget
– wherein lies another reason for Baldock’s frantic activity.
Focusing on SMEs
Much of the Budget focused on supporting SMEs.
Given Lombard’s own commitments to financing assets for smaller
firms via its retail arm (which lends to companies with annual
turnovers of less than £1m), and commercial arm (which does the
same for businesses with turnovers of between £1m and £25m), it
seems likely that the budget will have a large impact on the
leasing company over the next 12 months.
In this sense, Lombard is on the frontline of
not just UK politics, but also the struggle to get the ailing
British economy back on its feet.
Lombard is hardly alone in these
responsibilities. A host of UK and mainland European bank-owned
lessors, including UniCredit Leasing, have been tasked with
injecting large amounts into their respective SME sectors.
The onus, however, to aid SMEs seems
particularly great on Lombard, given the extent of its parent’s
nationalisation and the recent hammering it has received over poor
investments in the past.
Baldock, however, showed no signs of shirking his
responsibilities. Besides making clear that he is “fully signed up
to our part of the government lending commitment” to smaller
businesses, he also wants Lombard to “lend significantly more to
SMEs this year than it did last year”. Doing so, he remarked, makes
good business sense for Lombard.
“We want to lend to quality counterparties in
the SME sector,” he said.
Also, he feels, it will help the economy to
recover: “Lombard is the engine of recovery for the economy.”
On the subject of sourcing new business,
Baldock said that there are plenty of attractive prospects around.
He refused, however, to disclose how many finance applications are
turned down by Lombard.
Regardless, there is plenty of evidence that
Lombard is heavily committed to lending to smaller companies. A
quick search through recent press releases, local and national
paper articles reveals a plethora of finance deals to the SME
sector which are linked to Lombard (see box on page
15).
Interestingly, many of these deals were
introduced to Lombard via NatWest, part of RBS. This is testament
to the fact that Lombard, like many other European bank-owned
leasing companies, has become increasingly integrated into its
parent: rather than being a silo business, only chasing its own
deals from its own customers, it now relies far more on its
parent’s clients for new business and vice versa.
“It has been of the key legs of our strategy to co-operate
much more closer with the parent bank than Lombard had done
before,” said Baldock.
As a result of this change, “Lombard has
significantly improved its share of the RBS group customers’ asset
finance spend”.
This has given rise to a change in Lombard’s
typical type of employee.
“We have got a lot more relationship managers
today co-located with their bank colleagues than even a year ago,”
said Baldock.
In fact, these managers are so integrated into
the RBS mould that they even carry RBS business cards, despite
being employees of Lombard, and one source in the company says that
their contracts of employment also say RBS instead of Lombard.
Lombard’s increased integration into its
parent also means it is now better able to do larger sized
deals.
“One of the benefits of closer collaboration
with the bank is that we can work with colleagues within the
infrastructural division of the investment bank or our corporate
institutions and structured finance colleagues,” Baldock
explained.
Looking for larger deals
This fits well with Lombard’s philosophy of
doing bigger-ticket deals. Long gone are the days of leasing only
“unsexy” assets to smaller firms; now it is happy to lease larger
equipment in complex, structured deals to Britain’s top-end
companies, including those on the FTSE 100 and FTSE 250.
“Lombard is doing many more larger interesting
deals at the top end of the SME market,” said Baldock.
Closer collaboration with its parent has also
given rise to more opportunities for packaging deals. Lombard’s
strategy is now less about pushing leasing, and more about finding
“the best funding solution for our customers”.
Responsibility for driving this push towards
higher-end deals has largely fallen on the shoulders of Lombard’s
corporate arm – which until very recently was run by Richard
Priestman – and also its speciality finance arm, run by Wesley
Harfield.
It is unclear, however, exactly how much of
Lombard’s business is big ticket. Some sources say that Lombard
almost stopped signing larger transactions altogether during the
recession. Baldock, though, made clear that it is not short of
business in the larger-ticket space.
Lombard is also a lot more open-minded these
days about what assets it
finances. While Lombard traditionally has been associated with the
leasing of cars and other wheeled assets, over recent months it has
“spread its wings into other asset classes, from different types of
plant and machinery, to medical equipment, IT, and bespoke
industrial plant”, said Baldock.
Transition
Evidence suggests that RBS directors are fully
supportive of Lombard’s transition, proven recently when Lombard
was granted a mandate by its parent to offer corporate aviation
finance to customers of RBS Coutts, the bank’s private banking
arm.
The scale of these deals, compared to the
typical ones Lombard offers to even its top-end SME customers, are
considerable. In some cases, a single deal might be worth upwards
of £40m – twice what the top amount would have been in this sector
before Lombard received the mandate.
According to a source with long-term
connections to Lombard, the lessor had tried on numerous occasions
in the past to win this mandate and failed each time.
But giving Lombard access to greater capital
resources, RBS’ directors are said to be keeping an even more
watchful eye over the leasing subsidiary.
One source, who works outside Lombard but has
had dealings with the company over many years, claims that Chris
Sullivan, the chief executive of RBS’ UK corporate banking
division, is particularly interested in day-to-day business at
Lombard. Although this was not confirmed by Baldock, it makes
perfect sense.
Sullivan did, after all, spend five years in
charge of Lombard, and during this time helped to launch it into a
leadership position in the UK.
Latest results
So how does Lombard’s commitment to larger
ticket deals help with its even more important mandate of helping
UK SMEs?
Baldock said there is no conflict at all. To
prove this, he pointed out that lending to SMEs grew during the
recession and continues to do so today. He was, however, unwilling
to disclose hard figures to support this, although he said
Lombard’s “top line” grew last year despite the leasing market as a
whole declining by 30%.
“Therefore, we are in a significantly better
position versus our competitors, many of which pruned back in
lending or withdrew from the market,” Baldock said.
Notwithstanding this, according to RBS’s 2009
annual report, however, Lombard’s non-core Irish, vehicle and
broker businesses saw a drop in new business during 2009, with
gross loans and advances to customers totaling £2.7bn over the
year, compared with £3.7bn the year before.
New business at RBS Invoice Finance (IF),
another arm of the bank focused on supporting SMEs, also declined
recently, from £700m in 2008 to £400m last year.
Operating profits at RBS’s corporate banking arm,
which includes the bank’s IF and leasing businesses, also dropped,
totalling £1.1bn, compared with £1.7bn in 2008.
Even if there has been contraction, Baldock is
convinced that the potential for growth is considerable.
“We fully intend to grow this year the overall
size of our multi-billion pound book,” he said.
To help him achieve this, he pointed to the
large number of companies in the UK that are “inappropriately
funding their assets”, through cash, debt, and so on, and which
could benefit from being converted to the benefits of leasing. But
tapping into this market involves leasing companies rethinking
their approach to business. After all, Baldock said, lessors,
including Lombard, are very bad at promoting their wares.
“One of the mysteries of the leasing industry
is how it is content with having such a relatively small share of
the capital expenditure of businesses,” he remarked.
Therefore, he said: “Leasing companies must
make much more noise in the market to educate customers on the
benefits of asset finance. Lombard, as the market leader, sees
itself as having a responsibility in leading that charge.”
But while improved marketing techniques form
the centrepiece of Baldock’s strategy for 2010 and beyond, brokers
do not.
“We have made the decision to stop using that
channel, and that’s a decision we stand by,” said Baldock.
Inevitably, this decision
will attract criticism from across the UK leasing sector, with some
arguing that it is inevitable Lombard will return to brokers once
the current downturn ends.
Baldock doubted this, and claimed he does not
need their support in future: “We have by far the best distribution
network through our relationships managers. These are the people we
want to be working with going forward.”
It is not just brokers which have been hit by
Lombard’s change of strategy, however. Both Lombard Vehicle
Management (LVM) and Lombard Ireland remain designated as non-core
businesses of RBS.
Despite this, LVM remains very much in
business, and only last month it signed a 350-van fleet deal with
Wakefield District Housing.
Meanwhile, the Irish business, after it lost
more than 100 staff last year, remains in poor shape, as does the
bulk of the lending market in Ireland.
