Lindsay Town has worked in the asset finance industry for 40 years, covering point of sale small-ticket and consumer to major cross-border transactions, both in the UK and US. He’s held senior roles in Barclays, Lloyds, HBOS and PricewaterhouseCoopers, and now acts in an independent advisory capacity, primarily through his involvement with IAA-Advisory. Here he investigates the case forleasing companies to make better use of their data.
Recent times have led me to revisit some of my old and much-loved ‘soap boxes’. One in particular feels in need of a new outing, and that is around the UK asset finance industry and data provision, especially when compared to other financial service products.
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This is not about being populist; it’s about seeing a trend and a need that has, in my view, become more urgent and, if not addressed effectively, is only likely to hold our industry back.
The issue was brought to the front of my mind by the excellent piece written last month by Adam Daniels of Lloyds Bank in September’s edition of Leasing Life (issue 264).
As we ran into the 2007/8/9 debacle (I am fed up with calling it a ‘credit crunch’), our UK industry started, and continues, to go through major upheaval; not in its end-business so much, but in its ownership and stakeholder commitment.
We saw liquidity evaporate, but that has now passed, so everyone breathed a sigh of relief, but we still face issues surrounding risk and strategic value.
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By GlobalDataAs the global liquidity issues retreated, the next horizon became, and remains, the search for value and yield.
Value, in a narrow relative sense, is generated when an investor sees, understands and acquires an asset that others cannot analyse in the same way, or have even overlooked. The yield is not the headline number, but is risk-adjusted net yield achievable from whatever asset is acquired.
All pretty basic stuff, but when we look at the UK asset finance industry, what do we see?
We have an industry that proclaims its quality and capability. I subscribe to that view 100%. But when I see investors from outside the industry, the challenge becomes painful when responding to the simple request: "prove it". And as the years post-2008 march on, we now have regulation and capital requirements demanding increasingly detailed answers to the same question.
We are in a data-hungry and analytical world that’s never going to ask for less and will always seek more information on which to base decisions, investments and regulation.
What we’ve seen is a momentum for change, and after much study some relatively new names are looking, and making, investments and acquisitions in the UK market. We have also seen an initial return of the capital markets where, for example, Investec proved that securitisation in the ‘New World’ is achievable.
However, the activity is arguably held back, or at least constrained to those that have an innate knowledge of the industry, or available to those who develop the ability to inform the external world.
The two Business Bank ENABLE programmes are an excellent example of new thinking, but even a cursory view shows that strong data and ‘prove it’ capability is needed for either flavour (guarantee or funding).
When we talk about what we consider as defining our relative quality, we point to our core credit underwriting skills and also to our ability to deal with the assets that have been financed. However, while there’s some limited data available through trade body statistics relating to simple arrears, there’s little else, and in terms of how we deal with assets, I see no usable data at all.
Historically there have been concerns voiced in relation to data around a range of issues such as commercial confidentiality, competition matters and similar. However, in an era where data analysis is at the top of agendas in scope, scale and accessibility we need to reassess any historic reservations.
To open our industry fully to the beneficial stimulus of correctly priced external risk capital, we need to be able to answer the ‘prove it’ question emphatically.
We need to be able to provide data on our industry performance and risk management in levels of detail that arguably were never needed outside the individual companies before. This issue is emphatically not the province of banks alone; it applies to all providers in any serious endeavour to unlock the vast amount of risk investment looking for a home.
Even if one does not seek the external investment the need for ‘prove it’ remains vital, as the regulatory demand for transparency will only increase and that’s not just in the realm of capital regulations for banks as we have seen the increasing scope of regulation in the ‘non-bank financial’ world.
Detailed information
If as an industry we can once and for all develop the detailed information on risk and trends that other financial industries have developed both in the UK and elsewhere, then our investment proposition becomes one that has wider appeal.
That will encourage more external investors to see the industry as a viable proposition and in turn will stimulate the amount of risk capital available which will help to provide a healthy and expanding future for our industry.
By encouraging and proving our worth to the ‘outside’ world, not only do we attract more risk capital, but those that are seeking enterprise sales in whole or in part can achieve a wider market exposure and potentially better value.
In my view, those that lead in the data analytics of their business will find that they have competitive edge in terms of the scale and price of the essential risk capital raw material.
In the terms of our industry, strong, comprehensive and accessible data sets the UK asset finance industry out as one even more worthy of serious attention.
