Turmoil in the credit and equity markets, increasing levels of
debt, and the collapse of the sub-prime lending market have
impacted negatively on some leasing companies.
CIT Group Inc has seen a drop in its share price of 40 per cent,
and a rise in debt has caused One World Leasing to close to new
business.
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Meanwhile, Lloyds TSB has seen an increase in impairment
charges, and Barclays Capital, the structured lending and big
ticket leasing arm, has been left exposed to millions of pounds
worth of debt.
Banca Italease booked a net loss of €387.7m in the first half of
2006, compared with a €73.4m a year earlier, due to a €685.8m loss
on derivatives contracts. These contracts were linked to movements
in interest rates which fluctuated sufficiently for the level of
risk involved to increase. Ultimately these trades left a large
number of clients exposed to huge losses, and have led to the
resignation of most of the company’s board and auditors.
Also, the leasing arm of the Co-operative Bank is being
restructured, and the future of its head, Robin Sharples, is under
consideration following a shake up of the bank’s financial services
arm.
Last month, CIT Group Inc, the commercial and consumer financier
for the sub-prime mortgage and student loans sector, shares fell
37.5 per cent due to the shaky credit markets and its debt
protection costs surge by 100 basis points to 350 basis points in
an effort to provide some financial back-up for incoming debts.
The New York based company plans to exit the home lending
business and has even considered takeovers.
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By GlobalDataOne World Leasing, the UK based lessor for small to medium
ticket equipment, has ceased generating new business and last month
announced its intention to temporarily pull out of providing new
credit lines to its customers while it undergoes an internal
restructuring.
Hugo James, CEO of One World Leasing, said that the company’s
restructuring and temporary market exit is in response to drastic
changes within the credit markets over the past three to four
months, particularly starting with the under-performance in the US
sub-prime sector.
Barclays has also been left exposed with several hundred million
dollars in failed structured debt vehicles, which were set up by
Barclays Capital (the structured finance and big ticket leasing
arm), after the banks’ investment arm ran into trouble with the
credit markets in late August.
In the US, dips in the price of vehicles coming off lease has
also contributed to losses for banks and leasing companies
alike.
Bank of America, will take a £625m (US$1.25bn) after-tax charge
in the third quarter of 2007, to get out of the car leasing and
sub-prime real estate business and it plans to liquidate its
£13.15bn (US$26.3bn) sub-prime portfolio over the next few
months.
State Securities, the asset finance company that deals with the
sub-prime and SME sector, claimed that the turmoil in the credit
markets has not affected its business yet because most of its
transactions come from un-related UK based intermediaries, and it
is fully funded and supported by investment bank, Rothschild.
