Fred Crawley talks to George Ashworth and Ian Wilkins
from Aldermore about their plans for 2012.
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New UK bank Aldermore is growing at a blistering pace. It
started with a £250m balance sheet when it was created through the
acquisition of Ruffler Bank by private equity house Anacap and
other investors in May 2009. Today it has an asset base of more
than £1bn and hopes, at least, to double this in the next year.
As its asset finance division
prepares to mark its second anniversary, Fred Crawley talks to
divisional managing director George Ashworth and group managing
director for commercial finance Ian Wilkins about the group’s plans
for 2012.
Fred Crawley (FC): Thanks
for joining us. Could you start by giving a quick rundown of the
bank’s resources at the moment?
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By GlobalDataIan Wilkins (IW):
There are three parts to the bank – the savings business dealing
with retail deposits, the residential mortgage business run by Mark
Stevens, and the commercial finance business which was set up 12
months ago and is my remit.
There are three core parts to SME
lending within commercial finance: asset finance headed by George,
invoice finance headed by Damon Walford, who joined us from RBS
Invoice Finance three months ago, and the commercial mortgage
business headed up by Rob Lankey, which has close operational links
both to my division and the residential mortgage business.
As we sit here today, the three
divisional balance sheets are broadly similar in size, almost
sitting neck and neck.
FC: What’s next for
commercial finance as a whole?
IW: Twelve months
ago we saw a fantastic opportunity to leverage the skills of the
three businesses through offering jointly packaged products.
In the first quarter of 2012 we
will launch a structured finance team who will work in the
corporate finance market to deploy SME asset-based leasing with
multiple components – asset finance, invoice finance and commercial
mortgages. This will be headed by Ian Flaxman, who joined us from
Crédit Agricole three months ago.
We’ve been successful already in
funding a number of these type of deals. The businesses we deal
with in this capacity find it very different from what they’re used
to – even though high street banks have the resources to do these
structured deals, their customers will generally end up dealing
with three or four different credit committees.
This is an area where our scale and
youth has been an advantage – while we have individual credit
teams, on a larger deal that has multiple asset lines we have a
central credit resource. To reverse-engineer that in a big business
would be incredibly difficult. We have no heritage, legacy systems
or complex hierarchy to get in the way.
FC: What are you doing
operationally to make sure this is scalable as you
grow?
IW: There has been
huge investment in systems in the SME business unit and across the
bank as a whole. A core service we try to offer is the ability for
customers to deal with experts – ‘expertise applied’ is one of our
taglines.
We want to give people access to
asset experts, and demonstrate understanding of what we do, but
from a back office perspective our challenge is to make the
servicing of that as scalable and efficient as it can be. The
ultimate aim is to take the old-fashioned bank manager approach,
supported by today’s technology.
All our customers have got mobile
and direct dial numbers for at least two contacts in the business,
so that any time they have a query on their facility, they are
guaranteed to get the advice and support they require.
FC: Are you developing your
software in-house or contracting it out?
IW: A bit of both.
We have very reliable core systems in all our divisions – a mixture
of packages from providers and customer relationship management and
web access systems for introducers that we’ve built. We’ve done it
both ways. Some systems are fully supported by providers, whereas
elsewhere we’ll integrate systems from different providers.
FC: Funding – where is it
coming from?
IW: We have 50,000
savings deposit accounts. Liquidity is provided by our savings
base, and capital is provided by investors – the ratio is around
1:5.
FC: How have things
surprised or challenged you since you started up?
IW: When you’re
writing a business plan and agreeing to a set of numbers, it’s
always based on the assumption that demand will exist as predicted.
Without any shadow of a doubt, I can say there is a huge demand for
properly structured, properly priced financial products in the SME
marketplace, notwithstanding what we hear from competitors about
lack of demand. Not a surprise then, as such, but a huge
relief.
FC: Talking asset finance –
what are the numbers?
George Ashworth
(GA): Our portfolio looks set to close the year at £220m,
after 23 months’ trading. In 2010 we closed the year with
originations in excess of £100m – of which 30% was attributable to
the acquisition of Heritable Asset Finance. We tripled our direct
origination in 2011, so we will close 2011 advancing in excess of
£200m – just new business, with no acquisitions factored in.
FC: What areas are you
working in?
GA: Our major
vertical markets are materials handling headed up by Andrew
Woodward, construction led by Paul Rooney, and professions headed
by Don Hirst, who is also our broker expert. We also keep Ruffler’s
specialism in coin-op assets, with that line being led by Bob
Holliday.
There is also our wholesale funding
line, primarily block discounting, which allows us to act as a
business partner to vendors or captive finance operations. It also
lets us fund other funders, allowing us to participate in spaces we
might not be able to lend into directly. It extends our reach into
the SME space without requiring a huge sales team, and follows the
idea of efficient distribution that underpins the whole bank.
FC: Talking underwriting in
asset finance, do you concentrate more on client balance sheet or
asset strength?
GA: A mix of both
– let me clarify. Within our vertical markets it’s about
understanding assets – their application, the needs of users, etc –
and we have experts within those vertical markets to make sure we
can do that. The result is an underwriting mentality that’s
loss-given-default driven.
We started with the distribution
strategy of early traction through selected brokers, with an
eclectic selection of assets typical of that channel – as such,
underwriting there is wholly based on probability of default.
FC: How is your mix of
distribution channels looking?
GA: As mentioned,
we worked through a selected broker population at first and
continue to do so – we always want to deal with brokers who will
let us have sight of the
customers at the source of a proposal.
We source around 70% of business
through these, and 30% through vendors in our vertical markets.
Over the course of the business plan, this will rebalance to make
our vendor portfolio larger, with the aim that the balance sheet
will end up being 50:50 between
vendor- and broker-introduced business.
That means originations will shift
in proportion to favour direct growth within vendor channels – but
while that’s where growth will be applied, our absolute volume of
broker business won’t shrink.
FC: Are you looking to
enter new verticals? What about fleet?
GA: In asset
finance, there are verticals beyond materials handling, and so on,
which we will enter, but not fleet. It’s probably not prudent to
say what we are planning – if we entered that space by acquisition
and mentioned the asset type now, it could potentially raise the
price of a target.
FC: What’s on your
immediate to-do list for asset finance?
GA: Embedding a
new front-end into the business line that will allow brokers,
vendors and dealers to e-propose business for us. We are looking to
go largely paperless and we are far down the track on that project,
intending to go live with a pilot in Q1. Touch wood, we hope to
switch on and go live to the introducer base at the beginning of
H2. We will not be fully paperless, but the bulk of sales to credit
communication will be, and that’s where it will make the
difference.
The keys to success with brokers
and vendors are providing a quick credit decision, simple and
effective documentation, and accurate and timely payout.
FC: How about personnel
development?
GA: We’ll continue
to train people in-house with our own in-house courses – principles
of assert finance part 1 and 2 – but continue recruiting additional
good resource.
In terms of the people we will look
to hire, we recruit on competencies and skill-sets, not necessarily
background in asset finance – our in-house training can get people
up a very steep learning curve as quickly as possible.
We’re also investing a lot in
leadership development – not just in asset finance, but across the
whole bank. You can’t keep recruiting talent externally, so a lot
of energy has gone into developing leadership skills within the
business. It’s another benefit of being relatively small – it’s so
much easier to launch these initiatives and gain traction with
them.
FC: Next year as the
climate gets tougher, can you retain the attitude and enthusiasm of
the past two years?
GA: I can’t speak
for the group, but so far as asset finance is concerned, it’s all
about the people in the team, and generating enthusiasm for the
product. There’s no doubt that we will remain in growth mode and
forge ahead as we have done this year.
IW: Without a
doubt we are entering a time of very tough economic conditions. The
problems that will face our competitors are exposure to the
eurozone – we don’t have that – and the challenges of restructuring
balance sheets to meet Basel III – we are already completely
compliant. We also don’t have the challenge of sorting out the
legacy of pre-recession balance sheets.
We are not worried about a large
spike in defaults because our underwriting has always assumed that
things will remain tough long term. Our book has been written from
good quality, robust business over the past two years, and I feel
confident in saying we are one of the strongest banks in our peer
group to meet the demands of the marketplace.
GA: In terms of
the quality aspect – we receive more than 1,000 new business
proposals every month. The average Delphi score associated with
those is circa 65 – we’re writing business with Delphi scores well
in excess of 75. We have a very robust approach to credit quality,
and I’m happy with the risk appetite we’ve had for the past two
years.
As for the outlook for asset
finance, I’d say there’s a perfect storm coming in the financial
services sector. The eurozone issue, Basel III, and of course the
ICB report with all it has to say about the split between
proprietary trading and deposit taking activities.
Hidden within this is a real threat of increased consumer
legislation on non-banking finance and, with many SMEs falling
under consumer legislation, the cost of serving that sector is
something we’ll have to watch.
