New matrix management
system will keep leasing aligned with the parent bank’s priorities,
insists CEO John Howland-Jackson. Liz Bury
reports.
Go deeper with GlobalData
“Leasing will no
longer be a remote subsidiary business but a core product of the
bank.”
This statement, made by ING
Lease CEO John Howland-Jackson at Leasing Life’s Hamburg
conference in 2009, ruffled more than a few feathers.
Fast forward to March 2011,
and Howland-Jackson is putting his words into action. In a
significant restructuring operation, leasing activity across the
ING universe is being devolved where possible to national bank
level.
“I am asking, have I got a
business that would be better owned by ING in that country?
Companies that are part of the holding structure in Amsterdam are
going to be transferred to the bank in the country. That would have
been unthinkable a few years ago,” Howland-Jackson says.
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By GlobalDataChange is very much on the
agenda at ING Group; having received Dutch state support in 2009,
it was ordered to sell its insurance business, marking the end of
its bancassurance model.
“That’s about as fundamental
a change to come about from the financial crisis as you can
imagine,” Howland-Jackson says.
Financial
performance
At ING Lease,
performance held steady as changes at the bank unfolded.
Total underlying income rose
by 12.7% to €454m for the year to 30 December 2010, compared to
€403m in 2009. The net result was up 1.04% to €88m.
“In volume terms it was
sluggish, but margin held up at realistic levels over the course of
the year, reflecting funding issues in the bank market, and,
combined with declining risk costs, the financial performance was
entirely satisfactory – even quite good,” Howland-Jackson
says.
However the recovery remains
patchy.
“Some markets were more
buoyant than others. Germany was for the most part buoyant, but we
are not very big in Germany. The UK was buoyant, Belgium pretty
good, the Netherlands so-so.”
“Overall it was flat.
Customers are not coming running to do lots of new business. It’s a
reflection of the very slow recovery that goes on out
there.”
ING Lease’s business breaks
down roughly into general leasing at 40%, car leasing 20%, and
factoring 10%. Its top three largest markets are Benelux, followed
by the UK and then Italy. The others are Czech Republic, France,
Germany, Hungary, Poland, Romania, Russia, Slovakia, Spain, Turkey
and Ukraine.
Howland-Jackson will be
looking at what performs well, and where, and how this can be
aligned to help the parent bank achieve its aims. Car leasing was
among the strongest-performing business lines.
“Several things turned right
again all at the same time,” Howland-Jackson says.
Residual values climbed,
demand for new and used vehicles bounced back, and a shortage in
supply of new vehicles helped to push up prices. ING had a big
success opening a physical showroom to sell used cars.
Pricing
pressures
In the UK, ING continued to
pursue its policy for broker-introduced, small ticket business. It
speaks for about 40% of the UK broker market overall.
“The brokers need you to do a
certain proportion of their business. We are pragmatic in the
pursuit of business but we’re not going to change our pricing to do
business,” he says.
While pockets of good
business helped to sure up the overall result, pricing remains a
challenge.
“The ability to fund
customers is a precious resource,” Howland-Jackson says.
“In the old days, the
interbank market offered LIBOR with no premium at all. Ever since
the intra-bank market dried up in 2008, the bank is more dependent
on our own deposits or going to the capital markets. Our cost of
funding from the ING treasury is at the price they get it in the
market.
“We are very disciplined
about what is our overall cost of funds. We are strict about
covering our funding premium and making a profit on top. We’ve got
to make sure we are doing business at the right price.”
A slight improvement in cost
of risk compared to 2009 helped a little to ease pricing pressure.
Cost of risk of average risk weighted assets fell to 119 basis
points in 2010, down from 133 in 2009.
The bank is also helped by
its deposit-taking operations, particularly ING Direct, which
Howland-Jackson claims as the world’s largest online
deposit-taker.
Howland-Jackson argues that
new regulation should lead banks to see leasing as more attractive
than plain lending. Such belief in the value of asset finance to
the overall bank operation drives Howland-Jackson’s outspokenness,
even if others in the industry find his words a little
uncomfortable.
“Leasing models are generally
asset-backed, you should always be able to recover something and
therefore you need hold less in reserve.”
The capital reserves needed
to be held against different lending portfolios are agreed by each
bank with the regulator.
“My starting point is an
absolute belief that to remain a healthy, competitive European
bank, a strong asset finance operation is a part of it.”
National
entities
At ING Lease, this means
aligning with what the parent bank is doing in any given market.
Where it owns full service banks with national coverage, such as in
Belgium, Poland and Turkey, this typically results in smaller
ticket business through the branch network. In other markets,
larger corporate deals are more common.
“Wherever ING has a bank with
universal customers, we need to be there to back them up with
leasing and factoring.”
Invoice finance performed
well across the business in 2010, and one of Howland-Jackson’s aims
is to develop new such products aimed at the corporate market.
Supply chain finance, or reverse factoring – where the bank
finances payables by, for example, buying invoices from small
suppliers to a large corporate like Tesco – is earmarked for
expansion.
The challenge for bank-owned
asset finance houses as Howland-Jackson sees it is to ensure they
are as relevant as possible to their parent. For example, he wants
to develop an online interface between leasing and the retail
outlets, to help push leasing out through the branch
network.
“A 100% shareholder will
interfere if you’re using funding and precious capital on a
business that’s irrelevant to what the bank wants to do. Choices
may have to be made. You have to decide whether you want to do
business on the grounds of not being relevant or returning
enough.”
Other steps being taken aim
to satisfy regulators’ increasing demands that lending in a market
should be backed by deposit-taking in that same market. This could
lead to a big change in Germany, where ING Direct is a huge online
deposit-taker.
Howland-Jackson’s moves to
transfer more activities to a local level will result in a
structure whereby a centralised leasing operation remains in place,
but legal structures will be local.
“It’s a matrix management
world. The product lives with the global application. There are
regional businesses and ones that need to be run
globally.”
Support functions such as
human resources, credit risk departments and compliance will be
devolved to the local bank as much as possible.
“The crisis was so
fundamental a shock that it changed the way people think about
capital resources,” Howland-Jackson says.
“Banks will have to manage capital and funding resources
in a way inclusive of all business. You can’t have an outlier doing
its own thing. I will go as far as I can without breaking up. I
stick to everything I said in Hamburg.”
