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January 1, 2010updated 12 Apr 2017 4:28pm

Editor’s Letter: Why lessor and supplier don’t get on

Perhaps not at least according to the European Commission, which is considering forming a so-called European System of Financial Supervisors to oversee financial institutions, and also a European Systemic Risk Council, which will monitor the stability of the financial system (see Fresh scrutiny of lessors)

By Brendan Malkin

Is the European leasing industry able to adequately control and regulate itself?

Perhaps not – at least according to the European Commission, which is considering forming a so-called ‘European System of Financial Supervisors’ to oversee financial institutions, and also a ‘European Systemic Risk Council’, which will monitor the stability of the financial system (see Fresh scrutiny of lessors). Both of these might well be tasked with inspecting leasing companies, as well as other branches of the financial services industry.

The UK’s Finance & Leasing Association – the representative body for Britain’s largely unregulated leasing sector – does not think inspecting leasing companies should form the remit of these bodies’ activities.

This was made clear last month by an FLA spokesperson, who remarked: “The whole debate about restructuring the financial services is something leasing should be left out of.”

So, who is right – the EC or the FLA?

Before this million-euro question is answered, let’s briefly consider three stories.

Around five years ago, a host of top European leasing companies came across a company called IT Factory, run by a man called Stein Bagger.

According to witnesses, these lessors were desperate to lend to this Danish company. Bagger himself recently testified in court that banks “threw money” at him.

Last month, Bagger was sentenced to seven years in jail for a string of frauds he had committed against these lessors, as well as other companies (see The leasing crime of the century?), worth €160 million in total.

Consider also this story. Over recent months this magazine has uncovered evidence that a number of European suppliers have been behind deals involving so-called ‘services and revenue for leases’.

As is revealed in the cover story, these have stirred up a huge controversy in European leasing – even worse, it has led to considerable writedowns and increases in bad debt.

It is understood that, in response to this, one UK lessor has stopped receiving telecoms business from all suppliers except British Telecom – while another now only deals with suppliers which have been in business for five years.

The third story relates directly to the FLA itself. For years, lessors have been the victims of multiple financings. This has cost them, in total, tens of millions of pounds in writedowns and bad debt.

All this could have been avoided – by the creation of an asset register. Spain and France have each got one – and lessors in these countries sign each year considerably fewer leases than those in the UK. Sadly, however, the FLA only got around to launching one last month.

These three stories show that lessors do need outside help; that many are now suffering the consequences of having been driven by increasing volume; and that they have had their fingers burnt by doing business with questionable suppliers.

Perhaps, after all, the EC does have a point.

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