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November 22, 2010updated 12 Apr 2017 4:18pm

Leasing Life asset finance conference

Leasing companies should take a strategic approach to bank integration by focusing on specific assets and markets, delegates at the fifth annual asset finance conference heard.

By Antonio Fabrizio

Antonio Fabrizio digests a selection of presentations from the Milan event.

 

Photograph of Richard Carter, HSBC head of equipment finance

 

Banks need to see the value

Leasing companies should take a strategic approach to bank integration by focusing on specific assets and markets, delegates at the fifth annual asset finance conference heard.

Bank integration was among the raft of hot topics discussed by leading European lessors at the event in Milan last month. Bank-owned lessors might be forced to drop asset types and even turn down clients as integration proceeds.

HSBC head of equipment finance Richard Carter said: “Lessors will need to be fully aware of what their parent bank is expecting from them, and say how they could play a part in supporting the relationship with the bank’s corporate customers.”

Tough decisions may be needed as lessors reposition, including dropping some assets.

“Lessors need to be realistic about what they can do and what they can’t do,” Carter added.

“There will be times when they will have to discuss with the bank about which assets and asset classes they are not going to write in their business, and should have made that decision before a potential customer approaches them.”

On the other hand, close ties to the bank could help lessors retain existing customers.

“If it isn’t asset finance, it can still be lending. The bank can still fill the gap and provide a loan. And for leasing, if we cannot support all the customers, our goal should be to support more of them,” Carter said.

Nordea Finance CEO Jukka Salonen argued that integration can only happen if lessors demonstrate that they can add value to the corporate relationship.

“Banks and lessors need to find a mutually beneficial link,” he said.

“There is not a single model for correct bank integration, but the key element is that leasing must be seen as a growth driver. We have to make our banking colleagues understand there is much more value addition to the banking relationship with our solutions than traditional corporate lending.”

This could be demonstrated by showing specialist knowledge of assets, ability to build vendor programmes and captive business, IT lifecycle management, and fleet management. Bank-owned leasing companies may otherwise face the risk of losing their identity.

Salonen added: “It will depend on how well the bank understands the value of leasing for its customers. But it is up to lessors to prove the solutions offered are more than lending and leasing can add value to the bank’s business.”

Leasing companies able to do this will be recognised as part of the DNA of the bank.

“This way, it can become a win-win structure for all,” Salonen said. “The customer gets a whole selection of products and solutions, so there is a real benefit for everyone.”

Expertise in asset finance will make the businesses valuable to the banks.

Carter said: “Not having asset finance would open the doors for other providers to engage with the bank’s customers, and over the time develop a relationship which could diminish or even replace the existing one.

“Corporate customers need to know their lenders will be there when they ask for support, that lenders understand what they want, and have the products that will help them.”

 

Profit beats volume

UniCredit Leasing CEO Massimiliano Moi warned that lessors should be wary about falling into the volume trap again.

“It isn’t now, and it never will be, the right time to reduce margins and boost volumes. It is never the right time to give up profitability for volume,” Moi said.

UniCredit Leasing changed its strategy in 2008 to focus on value not volume as a reaction to the financial crisis, and has since made profitability its top priority. This has meant maintaining a spread of 2.39% in 2010, up from 2.35% in 2009 and 1.73% in 2008, and monitoring parameters to measure the company’s performance.

“Volume comes after spread for us as a priority, and the number of contracts comes after volume,” Moi said.

UniCredit Leasing’s commercial result, defined as new business volume multiplied by spread, was €185m for the nine months to end of September 2010.

The company claimed to be the most profitable European lessor if its Turkish leasing joint venture was included, with profit of €186m in 2009. Cost of risk was 50 bps for the year and the return on equity was 10% over the cycle.

 

Gouin: avoid ‘deadly sins’

SGEF global head of high tech Patrick Gouin said leasing’s “deadly sins” had been exposed by the financial crisis, but it had also pointed out the route to best practice.

European lessors were interested only in volume prior to the crisis, focusing on topping the rankings by size, and had limited risk protection. Now they needed to learn from past mistakes and adjust to the new reality.

“It is better to be small and healthy than big and dead. This should include more specialisation, and not trying to finance everything at all times,” Gouin said.

Lessors should accept that they might have fewer, happier customers, and should focus more on attracting the right employees.

“The quality of service depends on the quality of our people. We should see them as an investment, not as a cost. Make customers and employees happy, and the rest will follow,” Gouin said.

 

The Leasing Life Asset Finance Conference 2010 was sponsored by International Decision Systems.

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