The UK’s largest leasing business is banking on its parent’s branch network. Liz Bury reports.
Lombard has been working hard on strategy. The UK’s largest leasing company has put in place new managers, identified its target asset classes, and taken a long hard look at risk.
It has also been careful to align its aims with the policy of its 84% owner, the UK government. No surprise, then, that lending to small business to promote economic recovery is high on its agenda.
Managing director Alex Baldock says: “We have to lend more and need to do so responsibly. We see a market opportunity out there. Sale and leaseback can unlock cash tied up on the balance sheet – asset finance has qualities that lend to emerging from a downturn.”
Lombard’s parent, Royal Bank of Scotland, signed a commitment in November 2009, as part of the price of the bailout, to provide £16bn of business lending during the year to end February 2011; and a similar amount is committed for 2012.
RBS has also signed up to a customer charter for small and medium enterprises, obliging it to meet all reasonable applications for finance from viable businesses.
At a time when most other lenders have found it prudent to focus on margin over volume, aren’t Lombard’s commercial aims pulling against the government’s agenda?
Lombard North Central accounts for 2009 show the business lent less, at a higher volume, than during the previous year (see box).
Baldock says: “The conflict is not as acute as you suggest, we take a balanced view of profit versus volume. We are happy to play our part to fulfil government aims, but we are not only driven by that, we are not a charitable institution. We see a sound commercial opportunity to profitably fund SMEs.
“Our role within society is to de-rust Britain and to make sure it has the kit to be competitive.”
Baldock, 39, started out at global business consultancy Bain & Co, having studied modern European history at Worcester College, Oxford.
On leaving Barclays in January 2008, to begin six months gardening leave before joining Lombard, he had no idea that things would turn out as they did.
Since the bailout in autumn 2008 Lombard Ireland has been designated as non-core and Lombard Vehicle Management put up for sale. Employee numbers across the business dropped significantly during 2009, partly reflecting a swathe of jobs losses at Lombard Ireland.
The senior management has changed: several high-profile departures included Mike Oxby to Santander, and Richard Priestman. A combination of external hires and internal promotions forms the new team.
“We have invested heavily in hiring talent,” Baldock says.
Another significant change was to pull back from the broker network, paving the way for further bank integration.
“That was a hard decision. We weren’t making any money because we had been hit by bad debts and fraud.”
Lombard has become smarter at identifying and understanding its risk profile, and is now managing it more proactively than in the past.
Integration with parent bank RBS’s branch network has made Lombard’s solutions available to banking customers through 1,930 outlets (excluding 318 branches to be sold to Santander).
It is a different business model from that built by Chris Sullivan, now RBS chief executive of UK Corporate, 10 years ago.
“We have hundreds of relationship managers, the largest number of any lessor by a country mile,” Baldock says.
“General asset financiers are co-located with their bank colleagues nationwide, and work cheek-by-jowl with them. We work together on portfolios. We go prospecting for new business together.”
Baldock is determined that Lombard should maintain direct relationships with leasing customers even as it utilises the branch distribution network. The head of each leasing division (see opposite page) has been installed on their banking counterpart’s board.
“Our job within the group is to be a capital efficient lender,” Baldock says.
“Asset finance is a capital efficient way to lend money. The core of what we do is not about tax treatments, but is to do with understanding the value of assets to our customers. This core competence is our reason for being in the group and in the market.”
Behind the front-of-house staff, providing a deeper level of customer support, are Lombard’s product and asset specialists.
“You could call us an asset specialist business with strong coverage,” Baldock says.
Aviation, marine, and plant and machinery have been identified as target asset classes.
“Historically we have not been as strong on plant and machinery as we are on wheeled assets, but we want to do more,” he says.
Lombard claims to speak for 20% of the UK leasing market, twice that of its nearest competitor. After a period of such rapid change and instability, it now anticipates a healthy double digit growth curve.
Baldock says: “The last thing I want to do is sound pompous, but growth is important. If business doesn’t recover it hurts the economy.
“In Lombard we are prime providers, equipped to back business, and we want to.”