Last month, at Leasing Life’s annual conference and European
equipment finance awards, almost 200 delegates from more than 70
companies gathered in Berlin for a day of information sharing and a
glittering evening of prize giving. Fred Crawley and
Antonio Fabrizio reveal some of the key points raised
by the host of eminent speakers
For some time now, senior lessors
have been engaged in what has largely been a theoretical debate
about whether bank-owned leasing companies might at some stage
begin to lose some of their hard won and jealously guarded
independence.
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Ever since the downturn hit leasing, however,
it has become less of a theoretical possibility and more of a
reality, with lessors increasingly referring key risk and credit
decision-making to their parents.
The extent to which this independence may be
sacrificed was at the heart of an important speech at the
conference by John Howland Jackson, who made his first speaking
appearance since his appointment as CEO of ING Lease Holding
earlier this year.
“Leasing will no longer be a remote subsidiary
business but a core product of the bank,” he said.
As a result, bank-owned lessors in future will
be less and less able to act independently of group policy, meaning
leasing will no longer be ‘an industry apart’.
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By GlobalDataJackson was keen to stress, however, that he
had not predicted an integration of ING Lease Holding into its
parent, nor any erosion of leasing’s strengths as a product.
He added: “We must be extremely careful not to
bury that product’s qualities in banking. We must keep a firm grasp
of operational functions, and product specification – the biggest
impact will be on distribution mediums.”
As an eminent wholesale banker of 35 years’
experience, the appointment of Jackson to the leadership of ING’s
leasing arm has been, for many, symbolic of a general move by banks
to gain closer control of their asset finance subsidiaries.
“Leasing has been described as an ‘industry
apart’,” said Jackson, “and that can be a dangerous thing in the
current environment.”
He explained this in the context of ING’s
recent group-level business review, as a result of which the bank’s
insurance business is to be separated and exited by 2013.
As part of the same review, he said, ING’s
leasing business had had to reapply to be part of the group at
large – and had passed “with flying colours”.
“However,” he said, “the great surprise to me,
as someone who had been part of the bank’s management, was the
ignorance at the highest level of what leasing actually does.”
Not all predicted a future of greater handing
over of power to bank parents. Bill Stephenson, chief commercial
officer of De Lage Landen, was convinced leasing would not only
maintain its cultural independence, but grow in significance as a
business in its own right.
“This industry has never before had a clean
slate on which to rebuild business models, and we can afford to do
so now because, for the time being, there is much less competition
around,” Stephenson said.
Low competition, he added, was allowing
respite on margins long enough for lessors to concentrate on their
product offering in terms of service and specification.
He warned that if the industry followed the
temptation to reduce pricing, however, it would raise the threat of
financial products becoming “commoditised” in the eyes of
customers, leaving little to separate leasing companies except
price.
To Stephenson, retention and development of
senior staff with deep product understanding will be a major
priority in years to come.
“When recovery occurs, the baby boomers will
retire, and a tsunami of departures may occur,” he said. “There
needs to be a huge focus on HR now, unless the industry wants a
mass exodus of its best and brightest when good times return.”
Repositioning risk
‘Repositioning’ risk was a widely
discussed theme in all sessions of the conference.
UniCredit Leasing’s chief risk officer, Jens
Hagen, pointed to a lack of proper risk management structures as
being a key reason for lessors’ problems during the downturn.
For Hagen, lessors were often aware of that
deficiency, but decided to neglect it because “risk management is
simply not seen as cost-effective”.
Since the beginning of the crisis, the
Milan-headquartered lessor has tried to approach the problem by
dividing the wider issue of risk into specific tasks to tackle.
Hagen said these have included tackling non-performing loans, doing
“soft collection” whenever possible, having a separate focus on
big-ticket contracts, and cautiously looking at “agent-originated
business”.
Meanwhile, Nico Uijterwaal, chief risk officer
at Amstel Lease, told the audience that his company has tried to
“create a sense of urgency” when tackling risk, and looked at large
exposures first.
One of the new measures in place at Amstel, he
continued, has been a “direct debit monitoring” to accurately know
how the situation of the customer base in arrears was evolving.
Captives, too, have been changing their risk
procedures. Daniel Benoit, European general manager at Xerox FS,
explained that this repositioning included risk function being
involved also upstream, in the sales function.
Similarly, Pitney Bowes MD Patrick Jelly
explained that his company has been using software tools to define
customers at risk, trying to find out potential problems “even
before the customer knows that”.
Asset recovery and “RV
drama”
There was a general consensus among
speakers that drops in residual values should be met with an
avoidance of asset repossession wherever possible.
UniCredit Leasing’s Hagen said lessors should
take assets back only when it really makes sense, “because you
can’t easily sell the asset later”.
The same classification approach used for
tackling risk, Hagen said, needs to be used when looking at
different classes of impairment and of asset depreciation.
Vincent Rupied, director of corporate
relations at Arval, talked about a “residual value drama” in the
case of cars and light commercial vehicles. He forecast that, in
the long term, RVs for cars will remain at half their pre-crisis
values.
Insolvency debate
As confirmed in a wide ranging
survey of leasing companies released last month, the prospect of
client insolvency looks likely to remain the paramount risk concern
for lessors for a long time yet to come.
Speaking in a session aimed at lessors facing
recovery from insolvent clients, insolvency practicioner Dave
Standish of KPMG said that 2010 would be just as bad as 2009 in
terms of lessee failures, and that lessors would certainly see more
multiple financings brought to light in the course of
administrations. With many large administrations in 2009 seeing
lessors left in the cold as unsecured creditors, discussion is now
centring around the idea of all lenders in a case acting together
to secure a return.
Standish made reference to collapsed
construction support firm Nationwide Site Services and bankrupt
vehicle provider Potential Vehicle Hire as examples of insolvencies
where lessors made something rather than nothing after working
closely with other leasing creditors.
Tobias von Gostomski of Salans Frakfurt
explained that German leasing companies faced a slightly more
lenient situation in terms of the powers and duties of insolvency
practitioners than their English counterparts.
Meanwhile, Sonia Jordan, also of Salans, and
Alex Brick, the CEO of turnaround lender Gordon Brothers Group,
presented a case for the use of turnaround lending with troubled
leasing clients as an alternative to insolvency procedures.
