After a year and half at the helm of Raiffeisen Leasing, chief executive Alexander Schmidecker and managing director Michael Hackl talk to Peter Johnstone about Raiffeisen’s cooperative structure and why Western Europe is not for them
Towards the end of 2011, Raiffeisen Zentralbank Österreich, corporate headquarters of the Raiffeisen banking cooperative, announced a plan to restructure its leasing business, Raiffeisen Leasing, and appoint a new leadership team.
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A little over 18 months ago the team took the helm at a new umbrella company, Raiffeisen Leasing Holding, with responsibility for separate subsidiaries dealing with leasing for Raiffeisen’s Eastern European bank network and international business for large clients.
Here the leaders explain how they’ve dealt with structural issues familiar to all bank-owned lessors and why that means putting business in Western Europe under review.
Peter Johnstone: (PJ): What has been happening at Raiffeisen Leasing lately?
Alexander Schmidecker (AS):"Michael and myself, along with a third colleague [Christoph Hayden, chief risk officer], are responsible for Raiffeisen Leasing. Our main task has been refocusing the company with the goal of providing leasing services in the countries where Raiffeisen banking group is active. We looked at Western European countries, the Nordic states, and Italy in particular, in order to decide whether we should be active or not. And we decided that in Western Europe generally we’re going to run down the business there.
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By GlobalDataPJ: How will that happen?
AS: "In Germany we have a portfolio of about 400m and this portfolio will be well served, but we’re not increasing our business.
"In the Nordic countries we won’t be doing active leasing business in the future, but we are building a valuable partnership in the residential housing development business, which we are going to continue for the future.
"With Italy we have an ongoing strategic review, where we are thinking of doing remote new business in a geographical area around Venice in the north-eastern part of the country, with a special focus on existing clients, but not increasing business as much as we did in the past."
PJ: What’s are the plans for your business in Eastern Europe?
Michael Hackl (MH): "I would say there we have a very stable business. There are no plans to stop business in any of those countries.
"But we have to look at the macroeconomic situation across the region – we’re talking about 16 countries and 16 different economies. There are, of course, countries we have a strong focus on: Russia, the Czech Republic, Slovakia, and Romania.
"But there are also other countries like the Balkan states, where the overall situation is quite difficult.
"There’s very limited demand, very low investment and, of course, the leasing business is suffering because of this situation.
"But, in principle, we continue to do business. There’s no exercise like the one conducted by ING, which chose to exit some countries.
"We have a very different strategy in each of those countries, depending on the local demand and the local markets."
PJ: With ING pulling out, does that give you more room to take up what they left behind?
AS: "That may be; we have to have a look at this.
"But in principle our situation is quite different. As you know, Raiffeisen, rather than running national leasing subsidiaries, it’s always the case that the local Raiffeisen bank is also a stakeholder in the leasing company.
"I would call it a joint operation – a very strong and intense cooperation between the bank and the leasing business.
"The bank is a very important sales channel for our leasing business, so, by its nature, it’s quite different.
"There are always some possibilities for the leasing business coming from that area. Our strong position comes from this cooperation, especially from the corporate part of the local banks."
MH: "This is the reason why we are reconsidering our Western European strategy, because Raiffeisen isn’t active with on-site operations in those countries.
PJ: So you’re not looking to operate in countries unless you have a banking presence?
AS: "Exactly, but that doesn’t mean that we only have our sales channels through the bank.
"It means that we have got cooperation, using the sales channel of the bank, which is true for Austria and for all the other countries, but it’s also true that we are one of the first lenders for vendor partners, which are not entirely coming through the bank channel but which are acquired through our own process."
PJ: How does the cooperative structure affect your business model? Is it positive for a leasing company?
MH: "The main benefit of being in a cooperative structure is that even when you reach the very top management positions in the bank, you’re still very close to business.
"This is something that we’ve seen and that we appreciate. The cooperative structure is also not very hierarchical and we don’t have a speedy decision-making process. It’s a good thing because we don’t execute ill-considered decisions, which can happen in other companies.
PJ: As a mainly Eastern European-focused company, have you been affected much by the eurozone crisis?
MH: "In Eastern Europe no, but in Western Europe yes, especially in Italy.
"But not in Eastern Europe, with one exception. Slovenia is suffering a little at the moment.
PJ: Which sectors are you performing well in at the moment, and why?
AS: "Country-wise, Russia, especially, is performing very well, and Poland too. All stable markets such as Slovakia and the Czech Republic are also performing very well.
"The leasing business in Austria is also performing well, but where are suffering, as already mentioned, is our subsidiary in Italy.
"This is not only the case for the Raiffeisen group, but for most of the companies operating in italy. The market there went down, I think, more than 70% in the last year. But the entire leasing business in the Raiffeisen leasing family is performing pretty soundly."
PJ: And in terms of asset sectors? Do you have any that are particularly strong?
AS: "Overall it’s more or less related to vehicles – up to 70% of the leasing business. Up to 25% is any kind of equipment, and what of course is unattractive at the moment is real estate finance. There we have a cherry-picking strategy, but we are leasing people so we prefer typical leasing assets."
MH: "We learned over the past years that [real estate] is a very fraught portfolio on the risk side. Bigger real estate deals, or bigger equipment financing deals, were the ones that gave us the biggest headaches over the past year.
PJ: Is SME business an important market for you?
MH: "Yes, this is a focus that Raiffeisen has had for more than 100 years, in supporting SME business.
"We started in Western Europe and now we are very successful in Eastern Europe too."
PJ: What about public sector business or other sectors?
MH: "Public sector financing is also under our watch, especially in Austria where we have quite a big portfolio in public sector financing.
"But the public sector financing sector was a little bit affected by new regulations which were recently implemented [in Austria] which affected the leasing business; and investment possibilities for public financing also went down in the past year.
"We can see it in the leasing figures and also in the Austrian leasing market.
PJ: Raiffeisen was rumoured to be buying a stake in Volksbanken Leasing. Is there any truth in that?
MH: "It was in the newspaper – that much is true. The CEO of Volksbanken recently repeated that they want to sell their leasing business, especially the international business, but they want to do it through a tender.
"Raiffeisen is going to be invited, as is everybody else, and this invitation will be taken by Raiffeisen and the decision will be made very transparently as Volksbanken is owned by the state.
"There’s not a deal that’s already been done. We will decide whether we step in or not.
PJ: And what effect would the potential acquisition of Volksbanken Leasing have on your business?
AS: "It’s not easy to answer now – we have to analyse it on a country-by-country basis.
"We have to consider its business, its strategy, and find out answers to see how it would fit with our strategy. And how we can integrate the business with Raiffeisen.
"But it is at the end of the potential due diligence that we will decide."
PJ: Do you have any other expansion plans?
MH: "We don’t have any plans to expand.
"We are in almost 20 countries and that’s enough. I think now it’s all about concentration, and a time for refocusing, or rethinking, strategies from the past year, but not going into another country.
"Raiffeisen Bank International could do that, but our feeling is that they are also happy with the countries where they are.
PJ: What other plans do you have lined up for the next 18 months?
AS: "Staying in the markets which are going through extremely tough macroeconomic situations.
"Staying and getting growth in the key countries which had a good year in 2012, and seem to be having a good year in 2013 too.
"And coming into profitability in countries where we learned lessons, for example Italy, which we already mentioned.
PJ: Aside from macroeconomic challenges, what other developments or challenges do you see on the horizon, regulation for example?
MH: "The legislation situation is changing, it’s a continuous process and a part of daily business. But we are through the toughest part.
"IFRS of course will be the big topic. What’s going to happen with the new accounting rules, which has been going back and forth for years now.
"This is something which I think was hotter two years ago, and is maybe getting hot again in the next month or so.
"But I would say strengthening our forces in Raiffeisen will be one of our challenges.
"Because we are a cooperative structure, and we have one or two issues for leasing where we have to find our common way in the Raiffeisen group. But I think we are on track.
"Eighteen months ago Raiffeisen Zentralbank issued guidance, especially for the leasing company, for the future.
"It asked us to reconsider the countries where we’re active, and we did that over the past 18 months.
"The first exit decisions were taken in the first months.
"The main focus for us is: where Raiffeisen Bank is, leasing should be there also, and where Raiffeisen Bank is not and leasing is, there we have to rethink our strategy."
AS: "The strategy in a nutshell is to ensure that the leasing business at Raiffeisen is active, especially for SME clients, and doing the relevant other business with a very widespread risk portfolio. It is not the time for experiments."
