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The days of stack it high and sell
it cheap maybe over for a while. Until we’re out of the liquidity
shortage, leasing is likely to remain low on the list for banks.
Nevertheless, this will return – but is likely to include a greater
emphasis in risk-based pricing. This is evidenced in the very low
ROA of many of the failed or struggling leasing businesses. Without
a greater emphasis in this area, leasing businesses cannot provide
sufficiently for bad debts or delinquent portfolios. This also has
to be seen in the context of understanding the assets and
market.
David Bunker, director, Close
Asset Finance
The older ones among us remember
the days of 100% first year allowances for lessors. I worked for
Schroder Finance at the time and the company ran a number of
synonymous companies for individuals and businesses with spare tax
capacity.
US Tariffs are shifting - will you react or anticipate?
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By GlobalDataAt the time in the mid 1970s there
was a secondary banking crisis and there weren’t huge volumes of
bank funds available to lend. Non-banking companies’ profit were
available: consider how much more capacity there would be if the
likes of Tesco, BAE and Shell were able to shelter their profits in
the UK, and they were only available to businesses in the UK.
Iain Crockatt, owner, AH
Corporate Finance
It will take time before lessors
come back to the risk-based leasing product because of past losses.
A new strategy for insuring residual values on automobiles leases
would help investors feel more comfortable investing in leasing
again.
Philip Sampieri, Automotive
Lease, US
A simple way of making leasing more
attractive to investors is to allow leveraged leasing. Let’s say
the investor borrows on a limited recourse basis from a bank for,
say 75% of the asset cost; the lending bank only has recourse to
the ultimate borrower/lessee, so the security for the bank is as it
would ordinarily be for a lending bank, and the investor has not
geared up its balance sheet.
But the investor that has invested
25% of the asset cost gets the full value of any capital allowances
and access to rentals after the debt has been paid. Also the
investor may take a residual value position and assume some
repayment from the asset sale.
This is a model that has been put
to great effect around the world. Unfortunately the UK has not
adopted it but put measures in place to negate the possible
benefits. The benefits of the capital allowances are far more
greatly felt as the effect is on only 25% of the asset cost.
Investors are therefore keen to
invest, banks are keen to lend as their loan to value is acceptable
and therefore addresses liquidity issues and an investor is at risk
before the bank is and the lessees are keen to use this model as it
gives 100% finance.
Alistair Drage, owner, Athena
Aviation
To keep leasing’s ROE attractive
for investors we have to make sure that IASB/FASB’s new accounting
rules for leasing don’t grossly inflate lessors’ balance sheets and
corresponding capital requirements. This requires active lobbying
now. Leaseurope has been mobilised for over two years, and has
started this week with the European Banking Federation to jointly
look at the damaging impacts of the so-called IASB/FASB performance
obligation model for lessors.
Vincent Rupied, board member,
Leaseurope
Leasing will remain a popular form
of vehicle finance, despite new lease accounting proposals
announced by the International Accounting Standards Board.
Jay Parmar, head of vehicle
resources at the BVRLA
