While bank leaders say lenders should not be worrying about the
credit squeeze, some funders disagree
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The news in early October that Swiss investment bank UBS made a
loss of £340m in Q3 2007, and that Deutsche Bank was preparing for
a €250m (£175m) shortfall during the same period, were yet two more
warning shots across the bows of the leasing industry.
Doug McWilliams, CEO of the Centre for Economics and Business
research, told delegates at the Leaseurope/Eurofinas Convention
that it was inevitable that the credit squeeze will lead to a
drying up of mergers and acquisitions throughout industry. “At the
same time,” he stressed, “jobs in the City of London are going to
decrease. Over coming months there will be a significant economic
slowing down across Europe right through to 2009 and the UK’s
growth is unlikely to rise above 1.5 per cent in 2008.”
Indicating the historical growth of financial services in the UK
economy, from 7 per cent of gross domestic product in 2003 to 10
per cent in 2007, McWilliams warned that such growth could not
continue. “Lenders will experience greater difficulty in raising
finance,” he said, “and the European Central Bank is likely to keep
interest rates at a high level.”
Lessors’ funds drying up
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By GlobalDataHe believes that there will be less funding for lessors and,
thereby, less finance available to leverage some deals. “It could
lead,” he said, “to increased caution by banks and the threat of
increased regulation by the regulators.”
David Betteley, Finance & Leasing Association chairman and
managing director of Toyota Financial Services (UK), urged the
leasing industry “to prevail on our regulators not to overact to
recent events”.
“If, as a result of recent events,” he said, “they end up
over-regulating the industry it will, in the end, be the customer
that will suffer.”
Betteley stressed that lessors and asset lenders in general
should increase the sharing of data and be ever aware of adhering
to sector codes of conduct. “We have a moral responsibility,” he
said, “to work ethically.”
John Bennett, managing director of Bank of America’s Global
Vendor Finance business for EMEA, believes that the balance between
danger and opportunity provided by the credit squeeze is “about
50/50, but pointing more towards the danger end at present”.
“Some pundits believe that the independent leasing sector will
suffer most in the credit squeeze,” he said. “I am not so sure. The
crucial point is the level of investment in the UK economy – if it
reduces then we will all suffer. With the possible exception of
those dealing in aircraft leasing which seem to have the market in
their favour at present.”
Bennett warned also of default levels rising and residual values
falling if there is a slowdown in trade.
Lenders should weather storm
Lord Stevenson of Coddenham is chairman of HBOS and governor of
the Bank of Scotland. He stressed: “The end of the world is not
nigh – and what is happening to the credit markets is completely
predictable. The causes are a three-fold mixture of sub-prime
mortgage lending, the world’s banks being left with debt that they
cannot syndicate, and some large corporate market losses. All three
are still a relatively low part of total global debt.”
Nor, according to Lord Stevenson, did Northern Rock suffer a
“run on the bank”. “A run on a bank,” he said, “can be defined as
when people who need money queue outside banks that cannot pay
them. That was not in any way the case with Northern Rock.”
He predicts that such “bubbles in the international economy” are
for lenders to get used to – especially since they are well within
the capacity of the global economy to cope with.”
