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December 1, 2009updated 12 Apr 2017 4:29pm

Back to square one

Lenders are said to be signing risky deals again leaving brokers wondering why they were culled in the first place.

By Fred Crawley

Lenders are said to be signing risky deals again leaving brokers wondering why they were culled in the first place. Fred Crawley reports

It is clear by now that a broker market based on a short-term, transactional business philosophy is dead and gone.

The balance of power in broker-funder relationships has shifted, and introducers can rarely pick and choose between funders based on their response to individual deal proposals. To put it plainly: if you have a funder, you do whatever you can to stick with it.

At the same time, brokers are not powerless – lessors know that many of the UK’s best leasing sales professionals are active in the broker sphere, since most of them are former employees of those funders, who moved to make the most of regional or asset-specific expertise.

Equally, the SME market has grown used to using brokers to source leasing finance, in much the same way as they would look to an IFA for a pension or a commercial insurance broker.

But when Hitachi Capital left the broker market recently, it cited a search for “more profitable, less risky and more sustainable” business. By implication then, does this mean that broker business is unsustainable, unprofitable and risky?

Not necessarily. David Mogg, new asset finance representative at the NACFB and director of brokerage First Capital Finance, notes that many funders have used this justification to leave the market, while still writing some fairly low quality deals.

Mogg said: “Frustratingly, we have seen numerous recent instances of agreements being written by the direct sales forces of bank-owned operations that have left the market, at ludicrously low margins in much the same way as they were prior to their troubles.

“The fact remains that good brokers are able to introduce good business with lower costs and healthy margins.”

ING Lease obviously still believes this – it just showed its popularity among brokers by picking up NACFB awards for ‘Lessor of the Year’ and ‘Vehicle Finance Provider of the Year’, and is virtually certain to stay in the market.

Part of the reason for this is ING’s relative isolation as a commercial bank in the UK – unlike Lombard or Barclays, it has no business lending operation to seek direct sales from, and has set up its stall as an introducer-fed business.

Indeed, while ING Lease on the continent has incorporated factoring and ID into its business in recent years, it has “no plans” to expand its product range in the UK arm, which is possibly too heavily specialised in broker-led asset finance to make such a change.

That said, the model is not perfect – in explaining a 61 percent year-on-year profit drop for ING Lease as a whole, the Dutch banking group listed high loan loss provisions in the UK as a major factor. Whether this is down to the deeper recession in the UK or the broker model itself is a question best answered by ING.

One thing ING has definitely succeeded in is fostering a sense of trust with its brokers, a factor that other lenders may have lacked even before their exits from the market.

Mogg commented: “We have placed the majority of our business with ING for many years, prior to others exiting, simply because they are able to deliver a high level of service to us, which we can pass on to our customers – it is that simple.”

“For the broker system to work we have to remember that, ultimately, there is a customer at the beginning of the chain and that the customer has a choice – even though this is not as great as it once was.”

ING is often spoken of as making brokers feel as if they are a part of its business in the long run, rather than just ‘fair weather friends’ on a deal-by-deal basis. Presuming other volume lenders do eventually return to (or debut into) the market, it seems that brokers will be expecting a much closer working relationship.

Richard Hoggart (see comment, right) is head of DSG Financial Services – a broker in the world of vehicle finance where more funders have remained active through introducers. He feels that a risk-sharing joint venture model is the way forward in his sector, and possibly even more so in the heavily depleted asset finance market.

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