lease mergers and acquisitions, and others discuss life in leasing
during a credit crunch.
Rarely has an economic crisis inspired so much feeling as the
current credit crunch. While speakers at last month’s asset finance
executive briefing, organised by the leasing consultancy Invigors,
peppered their presentations with promises of a bright new future,
almost in the same breath they announced that things are worse
today than they were during the great depression, at least for the
banking community.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
“I have been thinking the unthinkable, and it has been
happening,” remarked Adam Daniels, an Ernst & Young partner
who, besides having advised recently on the Bradford & Bingley
nationalisation, is currently working on the sale of assets owned
by various Icelandic banks (see page 50).
He went on to say that a number of financially rock solid
leasing companies are “now getting out of asset finance”.
Meanwhile, Chris Boobyer, who before joining the Invigors
partnership held various posts in the asset finance arm of
Barclays, announced: “Now is the time
to restructure your business.”
Quite how this fitted with other comments was not immediately
clear. Ian Isaac, director of strategy and business improvement at
Lombard, pointed to volumes in October having been “stronger than
in the summer months before”, before admitting that he himself was
rather “surprised” at this “given the market out there”.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataDerren Sanders, who was appointed managing director of HSBC
Equipment Finance at the tender age of 33 – the youngest MD of an
asset finance company – later highlighted that he had seen “a
bigger rush at the latest quarter-end than we have seen
before”.
The reason for this, he went on to say, is that “factory
managers have been spending their capital budgets before they are
taken away from them”.
Real caution needed
Of course, the current crisis is resulting in both positives and
negatives. Across some fronts, real caution is needed.
In a comment that said it all, Isaac said: “Bad debt this time
last year was at an all-time low. Today they look like approaching
highs not seen since the last recession.”
Boobyer called for the “need to be prepared for defaults”, and
for “some of the front-end guys doing some of the back-end work”.
Audience and speakers alike agreed defaults are mainly attributable
at present to SMEs, but that this could soon widen to the large
corporates.
But the crunch was not all to blame, said Sanders: “Deals done
four to five years ago are causing bad debt now. Not necessarily
because of deals signed six months ago.”
While few disagreed with what each other had to say anyway, one
point they were particularly unified on was avoiding cutbacks.
“Do not be tempted to cut the front line,” said Isaac, “but take
a long, hard look at the efficiency of your middle and back
offices… they tend to get plump in the good times.” Sanders
pointed to the need to invest in marketing and publicity.
Rather than downscaling staff, Boobyer highlighted the need for
“refreshing the gene pool”, Isaac talked of “refreshing” risk
training, and far from advising in favour of IT cutbacks, others
called for improvements in automation.
However, Boobyer warned of a “migration of talent from
principles to intermediaries”. At last but not least, acquire
portfolios now, when they are cheap, panellists advised.
Improving procedures was another hot topic. Sanders pointed to
how it took his credit risk manger 40 minutes to explain his
company’s systems, when short explanations and streamlining were
needed.
Holy Grail of survival
Meanwhile, in terms of the holy grail of survival in today’s
environment, the answer was clear: get pricing right, get closer to
customers, and set RVs realistically so they reflect the
trough.
Either way, get ready for a rocky road ahead. Lessors, like all
companies, can attract less debt today than they could six month
ago. The solution is driving up equity investment. However, this,
of course, dilutes dividends.
Despite living in a world where companies still want to lease
assets, more than ever with refinancing needs as they are, there
are not huge amounts of room for optimism.
Brendan Malkin
