It’s been a busy year for the asset finance market all around Europe, and here we seek the insight from a few of the asset finance industry’s senior players as to what they saw as instrumental for the year’s events and what to expect in 2015.


Jonathan Andrew, chief executive of the commercial finance division of Siemens Financial Services

In 2014 the asset finance industry continued so see challenges from unexpected geopolitical developments, with approximately 40 UN areas across the world being classified as in crisis. In BRIC countries, asset finance players necessarily adjusted to ‘the new normal’ with more subdued or stalled levels of economic growth compared to previous years. In the West, certain economies strengthened, but sustainable and widespread recovery across Europe remained uncertain. Within the industry, new technologies, digital disruption, digitalisation, automation and the speed of change continued to influence the way the asset finance industry is serving its customers. The customers’ demand for speed of service, customisation and multiple access channels continued to develop. In several areas of the world, demand for asset finance grew as organisations sought to drive competitiveness through new, replacement or updated equipment, technology and machinery acquisition – often underpinned by more energy-efficient technologies.

George Ashworth, managing director at ABN Amro

For me, looking across both the European piece as well as the UK market landscape, the year 2014 will be remembered for several significant events. Probably most seismic was the completion and circulation of the third and final phase of the Leaseurope Basel III research project which evidences beyond question the capital-efficient nature of asset financing. Also instructive was CRD IV – the bulk of the rules contained in the legislation were applicable from 1 January 2014. CRD IV is made up of the Capital Requirements Regulation (CRR), which is directly applicable to impacted businesses across the EU, and the Capital Requirements Directive (CRD), which must be implemented through national law. It is intended to implement the Basel III agreement in the EU. This includes enhanced requirements for:

  • The quality and quantity of capital
  • A basis for new liquidity and leverage requirements
  • New rules for counterparty risk
  • New macro-prudential standards including a countercyclical capital buffer and capital buffers for systemically important institutions.

Also important this year was the robust work conducted by Leaseurope and other UK industry colleagues in respect of lobbying the IASB’s proposed changes to lease accounting; for a variety of reasons, the "rush" to secure relevant permissions under the UK Financial Conduct Authority’s revised regulatory regime; the launch of ABN Amro Lease UK as a new venture in the UK; the Mercedes Benz Financial Services UK Ltd v HMRC ‘Agility’ case; the potential broader implications for the industry and UK ‘challenger banks’ after the postponed IPOs of several UK banks at the end of the year. Finally, for those who knew him and worked with him, 2014 saw the very sad and tragic loss of Dara Clark as a friend and great supporter of the industry.

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Kai Ostermann, chief executive officer of Deutsche Leasing

Looking at Europe in general, the picture regarding margins and risks is very heterogeneous. So, there’s definitely pressure on the margins and the prices are depressed. Moreover, the interest rates are very low and there’s too much liquidity in the market.

I think that the development of the past two to four years will go on. Smaller leasing companies will disappear from the market or they will have to cooperate with bigger ones. Imagine that, in the year 2000, Germany had more than 1,000 operating leasing companies.

In April this year, BaFin says, there are currently only 380 leasing companies operating in the market, down from 400 leasing companies last November. This is a rapid change. The reasons for this change are various: refinancing issues, expanded regulatory requirements, as well as more competition with banks, which increasingly identify SMEs as a new target group. So, the whole leasing market will be further consolidated and only large or specialised leasing companies will stay in the market. The German leasing industry is recovering from the financial crisis, but in Italy, for example, it is different: in 2007 the leasing industry invested about €50bn; in the year 2013 the investment rate was only €15bn. So, the German leasing industry can stay optimistic.

Chris Cooper, managing director at Challenge Consulting

"If you’re considering business growth as a measure of how things are, then the asset finance and leasing industry in the UK has had a very good year – it’s been the longest unbroken sequence of growth since before the financial crisis. Irritatingly, though, growth can be a not-exclusively reliable friend. It’s harder to justify and commit to innovation and new thinking when existing thinking appears to work quite well – one has the suspicion that 2014 will not necessarily be seen as a watershed year in innovation, invention and change in the sector.

2014 hasn’t necessarily been a bad year for lease accounting and the changes that flow from it – but one has learnt not to hold one’s breath in expectation of imminent and complete agreement.

For the automotive leasing sector, 2014 may turn out to be a year that, in the end, feels quite different, if residual values start to resemble the last time this funding was so popular 15 or so years ago.

Perhaps most importantly, 2014, in the end, didn’t turn out to be the year when we discovered what happens to the industry when base rates start to rise. Getting back to anything like an historical ‘norm’ on rates is essential before we can say that the financial crisis and its aftermath is behind us – maybe next year – or the year after, by when there will be huge swathes of professionals in the industry who weren’t around the last time base rates went up (that was July 2007, when rates went up 0.25% to 5.75%). Hopefully sufficient ‘old-timers’ will still be here who can remember what you’re supposed to do!"

Christian Bernhard, managing director, GE Capital Vendor Finance

2014 was an interesting year for the leasing market. The year started with a significant amount of optimism: Our Q1 Capex Barometer – a survey of 2,200 European business leaders – found confidence increasing among SMEs and mid-market firms, with more than €410bn being earmarked for capital expenditure over the next 12 months and 2.4 million new jobs planned across European markets. However, as the year progressed, the slowdown of the European economy and increasing economic uncertainty ultimately led to fewer investments being realised.

The biggest winners in 2014 have been those companies which have developed a diversified vendor focus and built out industry-specific solutions. Leasing firms which have built dedicated and specialised teams around industry verticals have been able to develop the required solutions to adapt to a new world characterised by a continued dematerialisation of assets, particularly in the technology and health care industries.

At GE Capital we see the UK as being the most dynamic country for leasing in 2014. It has been a very good year with increasing lease penetrations. Our revenues have grown by double digits across all targeted industries.

At GE Capital we expect to grow in EMEA by around 15% year-on-year across all key markets and target industries. We’ve already rolled out software finance solutions which enable vendors to book revenues related to the provision of their software immediately, rather than receive monthly revenue streams. We’re are now also developing and rolling out a new ‘Finance as a Service’ (FaaS) model to finance cloud solutions. After a successful pilot in France the product will be extended to other European countries in 2015.
We’ve also seen a successful continuation of our diversification strategy in the health care vertical, partnering with several new manufacturers in the industry as a vendor finance partner. We are looking to build on this.

Looking ahead, the European leasing market can expect uncertain macroeconomic conditions to continue into 2015, which actually provides an opportunity for the industry to create innovative solutions to enable further, critical investments to take place. We believe that vendors on the one hand are in need of innovative solutions to sell their services, and on the other hand we see an increased demand for digital solutions to reduce their cost of origination. From a pricing perspective, an anticipated increase in ECB interest rates at some point next year should lead to the ‘normalization’ of market pricing.

Bill Dost managing director, D&D Leasing

While I don’t think we can quite say that everything is perfect in the market just yet, I would say that the leasing industry as a global business is growing at a pretty heady rate. With well over 50 funders in the in the UK, proclamations of the best year for fundings in the last six, and 21% growth over last year it certainly seems that happy times are here again. I’ve said it before and I’ll say it again, this kind of market calls for cautious optimism because for all this good news, rates are at an all-time low, with many people battling for the same patch of earth. I think next year will have us all looking for new ground and opportunities, whether it’s through innovation (3D printing anyone?), new products, or a hold steady approach. One thing is for sure, 2015 will not be a repeat of any of 2012, 2013 or 2014. So we here at D&D Leasing will continue to do what we do best and that’s support the SME business, wherever we may find them. And maybe, just maybe this election I keep hearing about won’t have results that aren’t too terrible to bear either!

Carl D’Ammassa, managing director, Aldermore Asset Finance

The shift in responsibility for oversight of consumer credit from the OFT to the FCA has materially changed the consumer credit market but also the way the financial services industry works. For me this has been by far the most significant industry event in 2014, for both funders, introducers and end-users of finance. It is clear to me that we have to change the way we work and operate with greater diligence to ensure fair outcomes for customers. I do believe that our industry works positively to treat customers fairly – the focus now is on building regulator confidence in us and being able to demonstrate that.

Many intermediaries have had to respond by operating in completely different ways, and there are some that recognise the challenges and demands of this changing regulatory environment. Accordingly they have been forced to revamp their business models totally, bringing on extra resources to manage the new regulatory requirements. Sadly others have decided the change is just too much for them, making the tough call to exit the consumer financing marketplace or worse, totally discontinue their own operations.

I feel that 2015 will be another strong year of growth for our industry. I expect the competitive landscape to continue to heat up as we see new entrants to the market, particularly as business confidence is forecast to remain and long overdue capital investment continues. I expect our industry to remain robust. Research shows that confidence among SMEs remain high; in Q3 2014 confidence was more than double what it was at the same point in 2013.

I do however think the industry needs to prepare for a return to normality with regards to credit losses. We have had a long period of exceptional conservatism and so we end 2014 with quality portfolios. While we are realistic that this will ease slightly, we cannot forget the lessons of the past and we must ensure that as an industry we are in good shape to tolerate loss and our short-term origination strategies are aligned to that.

Derek Soper, chair of IAA-Advisory

Our consultancy business has thrived in 2014, not least because our unique business model encourages high-quality individuals to work together and still retain the individual choice of how each project is undertaken: solely, together with others, or as an IAA project. We have taken the view that to encourage the best in the business we need a business model which combines individual freedom of choice with the benefit of ‘belonging’ within the IAA family.

Assignments have been awarded to us for a variety of reasons, from a broad assortment of customers and countries. 2014 has seen a surge of China-based business opportunities. Clearly having a senior director based in Beijing and Hong Kong gives us a considerable advantage which has led to inward and domestic assignments; a number of these have resulted in us giving support from the UK where we also have directors experienced in the Chinese market. China has seen substantial growth in leasing in recent times. It now has over 1,000 established leasing companies collectively delivering over $200bn annual turnover.

In Europe we see substantial change in the market, with banks cutting back on their involvement, leaving a few opportunistic players to benefit from their absence. Going against this trend, we see captive financiers on the rise; existing captives are growing and there are new entrants in the pipeline. IAA-Advisory continues to support the Captives Forum in all its activities and is deeply involved in the ongoing activities of the Leasing Foundation. In 2015, financial institutions will be learning more about the ‘shadow banking’ questions currently being debated, and inevitably the steady march of regulation and supervision will continue. I guess that is why ‘consultancy’ continues its growth mode!

Martin Harries, head of intermediary sales, Investec

The 2014 UK economy has seen a second successive year of solid growth following four years of uncertain recovery. Key to this is business investment which, in the first half of the year, was running at 11% on the year, 8% higher than the pre-crisis record.
The asset finance industry is at the forefront of facilitating that investment, with recent FLA figures showing that asset finance surged 14% in the 12 months to September compared to a year earlier. At a time when access to traditional bank loan funding has been tightening, our industry has continued and increased UK SME finance.

This success rests primarily on the strong relationships between brokers and businesses throughout the UK and is also aided by funders’ ability to draw on government support through the Funding for Lending Scheme (FLS) since mid-2012.

While the scheme has been heavily criticised for inflating house prices in London and the South East and failing to support business investment, we believe it has played a part in the recovery of the economy as a whole, including the leasing sector. By providing cheaper funding to commercial banks, the FLS is helping to improve the pricing of lending to the wider economy.

But the economy isn’t fully recovered yet. A particular concern is the result of political deadlock after next year’s election with neither party winning sufficient votes for an overall majority. While this might faze financial markets for a while, we expect overall UK growth to remain solid and the growth of the asset finance market to continue.

Martin Nixon, head of asset finance, United Trust Bank

2014 has seen the asset finance sector grow significantly as a result of the continued recovery in the UK economy. Many funders, including United Trust Bank, have grown their lending books considerably and have experienced negligible bad debt. However, more new entrants into the sector have started to erode margins and ‘pricing to risk’ seems, for many, to be an outdated concept. While interest rates remain at historically low levels this shouldn’t present too many problems for the majority of funders, and 2015 should continue this trend.

One note of caution though, with a general election on the horizon, and the inevitable uncertainty that will surface in the run-up to the big day, we hope that this will not lead to a stalling of decision-making among our customers. Perhaps even more importantly, how will the outcome of the election affect confidence in the economy?

The general election aside, as we move into 2015 the FCA ‘landing slots’ will finally arrive for the majority of asset finance brokers. This issue has probably been the biggest dread for brokers this year, creating uncertainty and confusion among many. It has already led to further consolidation and growth for some of the larger broker groups, and the loss of independence for many smaller brokers is a regrettable consequence.

However, a new year is almost upon us and further opportunity and growth beckons. Competition is only going to become fiercer and events in Westminster could still play an important role in the immediate prospects for our industry.

Chris Boobyer, senior partner, Invigors

2014 has been the year when we have seen some real confidence returning to the general asset finance market in the UK. This is not quite the case in the continental European market where growth and confidence is patchy. Those companies that addressed the issues early and took some tough decisions understandably seem to be in the best shape.

Those who did not appear to be finding that life remains unnecessarily difficult, which is unfortunate because a number of opportunities await those who have the confidence to look out for more than 12 months and are in a position to start reinvesting. A lot of our work at Invigors now is about growth, discovering new opportunities, channels to market and acquisitions, with some CEOs talking confidently about where their business will be in three-to-five years’ time.

Our chief executive forums and executive briefings, some of which we host with Leaseurope in Brussels, have business growth, service improvements, product development, harnessing technology and identification of future leaders as the five key issues.
Of those, the greatest challenge in our view will be understanding and properly harnessing the power of the new technologies becoming available to us. For example, the Internet of Everything which is introducing global connectivity of assets and can provide monitoring, diagnostic and sometimes just simple positioning is a huge step forward and will unleash many new products and service enhancements in our view.

Equally, the industry needs to focus on its future leaders and refresh the gene pool with new talent who will challenge some of the currently accepted industry ideas and principles. Our work with Leaseurope and the Future Group programme over the past two years has been highly productive and has illustrated the depth and strength of the next senior management layer just itching to break free and make a difference.

As with all good consultants we have taken our own advice and have matched our clients’ ambitions for expansion by opening new operations in Romania and Turkey during the year, where we see exciting possibilities both locally and as a bridge for existing Western operations into those regions.

Although the general industry statistics do not yet reflect the growth projections which are driving the underlying confidence in the market, our antenna tells us that where both new money and old warriors are coming back into the market there must be a very good reason!

Mike Randall, chief executive officer, Close Brothers Asset Finance

Over the past 12 months we have seen a notable increase in the number of new entrants that have aspirations to grow in the UK asset finance market. This is a good thing on two counts; it’s a vote of confidence for the potential of the industry and it’s increasing the number of financial choices a small business has, which ultimately supports the sustainable growth of the economy in the UK and Ireland.

One of the most significant things to happen this year was the government’s increased recognition of the support alternative lenders can offer SMEs. They are actively tackling the perception that SMEs can only access sustainable funding from the banks and that is vital for this market.

The Regional Growth Fund has also been an important development for lessors. We were awarded £30m in round three and £40m in round five, which has allowed us to help hundreds of businesses to purchase the assets they need for growth. More than 1,600 jobs have also been created or safeguarded as a result of our scheme.

Looking on to the new year, the FLA is quoting levels of asset finance volumes that are up year-on-year and there’s no reason why this trend won’t continue in 2015 as demand for finance increases in the marketplace.

Our survey, the Close Brothers Business Barometer paints a positive picture. Three-quarters of business owners polled said they are optimistic about their prospects for the year ahead, and two-in-five describe themselves as confident that their business will expand during 2015.