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January 12, 2010updated 12 Apr 2017 4:28pm

Tough times for all

HSBC Asset Finance (UK) Limited

By Jason T

Both bank-owned and captive lessors have found it difficult to make profits, as the latest figures show

HSBC Asset Finance (UK) Limited

Reporting a pre-tax loss of £128.4 million (€142.1 million), compared to a profit of £87.6 million in the previous year, HSBC Asset Finance (UK) Limited had a mixed year ending 31 December 2008.

The company’s directors attributed the fall to losses made on derivative contracts – primarily interest rate swaps – which were ineligible for hedge accounting.

HSBC Asset Finance (UK) – which acts as a holding company across the HSBC Asset Finance Group, including HSBC Equipment Finance (UK) Limited, HSBC Invoice Finance (UK) Limited, HSBC Rail (UK) Limited and European Rail Finance Limited – saw losses from interest rate swaps grow from £8.6 million in 2007 to £157.9 million in 2008.

“The increased loss is due to the sharp fall in interest rates during 2008 and is matched by a corresponding increase in the value of leases in subsidiaries for which the derivative contracts are an economic hedge,” they said.

“The loss will reverse over the life of the contracts.”

An analysis of the lessor’s credit quality shows the onslaught of the economic crisis. Compared to 2007, when HSBC Equipment Finance impaired £1.6 million, the lessor impaired £18.7 million worth of finance receivables last year.

The amount of sub-standard, but not impaired, receivables also grew significantly, moving from £300,000 to £10.8 million.

But the business also reported growth in total assets in 2008, increasing by 4 percent to £6.4 billion at year-end. Revenue from finance leases was also up, by 7 percent year-on-year, to £20.6 million.

HSBC Equipment Finance (UK) Limited

One of HSBC Asset Finance (UK) Limited’s subsidiaries, HSBC Equipment Finance (UK) Limited, also reported results last month for the year ending 31 December 2008.

2008 was a year of strong growth at HSBC Equipment Finance, with the business seeing finance lease income increase by 28 percent to £49.6 million, and operating lease income nearly double to £832,955.

Due to higher administrative expenses, pre-tax profit fell, however, to £1.5 million, compared with £2.5 million the previous year.

While total assets at the equipment lessor grew to £867.1 million – a 33 percent rise – the lessor’s credit portfolio also saw impairments grow significantly.

Indeed, while the lessor impaired £7 million worth of receivables in 2007, this tripled to £23.5 million last year.

Non-impaired, but sub-standard receivables also tripled to £19 million, while an additional £30 million was added to the lessor’s £53 million ‘watch list’.

Investec Asset Finance plc

At Investec Asset Finance plc, another bank-owned equipment lessor, the year ending 31 March 2009 proved a challenge, with the company reporting a pre-tax loss of £330,000 compared to the previous year’s £3.4 million profit.

Investec, which specialises in small ticket broker-introduced leases, also saw turnover fall last year, by some 75 percent, to £45.5 million, with the result that the volume of new assets let under finance leases reduced from £153 million in 2008 to £114 million in 2009. As a result of this decline, cost of sales also fell dramatically – by 81 percent – to £31.3 million.

The lessor attributed the decline in turnover to the “prevailing economic conditions”, but remained positive about next year.

“We believe the outlook for the company is positive,” the directors said.

“It is planned to seek growth in the book, primarily through the small ticket vendor finance division in organic growth and the purchase of existing portfolios.”

De Lage Landen Leasing Limited

Meanwhile, De Lage Landen Leasing Limited (DLL) continued to make losses in 2008, reporting a pre-tax loss of £6.4 million, compared to the loss of £1.1 million in the previous year.

“The year under review shows significant losses due to an increase in risk costs and provisions due to the recession and weakness in sterling against euros in the latter half of the year,” DLL’s directors said.

Turnover and operating profit were both up by 68 percent and 60 percent, however, to £35.6 million and £19.5 million respectively, although this was brought down by higher administrative expenses, which increased by £12.7 million, to a total of £25.9 million for the year.

Scania Finance Great Britain Limited

It wasn’t only the bank-owned lessors who felt the effects of the economic turmoil – captives’ profits were also hit.

Despite turnover growing by 5 percent year-on-year to £48.9 million, Scania Finance Great Britain, saw its pre-tax profit nearly halve in the year ending December 31 2008 to £1.8 million.

The captive, which provides finance for Scania commercial vehicles, saw its penetration rate grow by 5.8 percent last year, to 34.2 percent of all new Scania registered vehicles – a good result in a bear market.

Scania Finance’s product mix also evolved, with hire purchase contracts gaining 5 percentage points compared to the previous year.

Indeed, hire purchase contracts made up 57.9 percent of total receivables (52.3 percent in 2007); finance leasing contracts totalled 4.5 percent (5.6 percent); and operating leases 37.5 percent (42 percent).

Snap-On Finance UK Limited

Finally, at Snap-On Finance Limited, the captive for industrial tool-maker Snap-On, 2008 was a strong year, with both turnover and pre-tax profit increasing.

While turnover grew 17 percent to £5 million, pre-tax profit increased by 38 percent to £4.4 million.

“We increased our turnover and interest income in the year to record levels, and continue to trade profitably to date in 2009,” the captive’s directors said.

UK lessors

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