relationships still rule the roost among bank lessors
Leasing Life’s series on European banks (September 2007
issue number 168) underlines a trend which has been in the making
for some time – that of the banks slowly but surely taking back the
control of their leasing activities. For many years our industry
has enjoyed the freedom that breeds inventiveness, and this has
revealed itself in the continuous and above average growth among
leasing companies during the past two decades. A number of the
speakers at the recent Leaseurope convention in Edinburgh
emphasised this growth – and long may it last. The downside, and
perhaps our downfall, were the frequent comments that the growth
has been achieved by taking market share from other banking
facilities.
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It is ironic that taking market share, usually by a finely tuned
marketing approach coupled with the availability of skills to align
product with specific markets, has resulted in many banks taking
the view that leasing would be better controlled by integrating it
with banking products.
It is not massive insight which leads one to reject this theory,
rather the practical application of common sense.
The leasing industry, aided and abetted by the banks, created a
new and exciting product which clearly aligned itself with new
capital investment, and also had the advantage of being
specifically designed towards ownership of the asset for
establishing its security. The main difference this created was
that the bank’s normal services were aligned with equipment sales.
This close relationship with the equipment staff also brought a
whole new set of people into the banking industry. In the main
these were not natural bankers, but rather more entrepreneurial
individuals who at the time were seen as refreshing and a major
addition to the traditional banking fraternity.
The injection of a whole new product line to the banks’
traditional services has always produced pricing differentials to
the normal run of the mill products. The resulting salary
differentials are more easily seen in today’s environment by taking
a look at the rewards enjoyed by many engaged in the investment
banking and capital markets activities of the major banks. This
phenomenon was no less noticeable amongst the leasing companies, at
least until changes which have come about in recent times.
Standardisation and process have squeezed more profit out of the
traditional banking products and now the move is to do just this
with the leasing activities. The loss of personal contact on the
origination of business has allowed a huge broker market to take
over from the direct sales forces of the lessors, and gives the
banks the opportunity to “integrate” their business segments.
Opening borders
The banking industry of the European Union countries has been
significantly deregulated during the early 1990s. Prior to this the
possibility of cross border expansion was severely constrained,
whilst after deregulation banks within the EU have been allowed to
branch freely into other EU countries. In addition, EU banking has
experienced a huge process of consolidation and this has brought
with it a significant consolidation of leasing groups. Merging
lessor subsidiaries is still a major headache for banking parents.
On the one hand they want to make sure they retain all that is good
about the business while at the same time reducing head count.
Ironically this is where many of the new broker businesses are
created and where many of the old ‘personal relationships’ continue
to produce the business.
The author is a principal at The Alta Group
