There were two main themes on the agenda of the recent Leaseurope conference in Edinburgh, even if they were not officially present in the descriptions of the talks on offer: the current ‘credit crunch’, and the environment. Predictable, perhaps, but no less interesting for it.
How will lessors and finance providers adapt to a world where providing finance for, say, the expansion of an airport in Essex could lead to protests outside a head office in Paris – and the attendant bad publicity? This was the thrust of the speech by Leo Johnson, co-founder of Sustainable Finance Ltd, a consultancy which specialises in environmental and social risk analysis. It is not sustainable in the long term for financiers to accept environmental and social practices in the developing world connected with projects they are funding or companies with which they are partners which would be beyond the pale in the CSR-obsessed West, Johnson argued. His well-delivered and well-received talk was a highlight of the programme.
The green argument feeds into the credit crunch issue, Johnson added, as they are both connected to the need for responsible leadership in finance companies. Giving the example of “NINA” (no income no asset) CDOs, which were gaily traded by investment banks on the international markets until the US housing market started to suffer, and the NINA customers began to default in large numbers, Johnson inveighed against the short-term thinking which has been at least partly responsible for the finance world’s current troubles. Likewise, he said, fleet providers should start to think about the long-term carbon profile of their vehicles, and how to minimise environmental damage – before regulators take the issue out of their hands.
There was reassurance from Centre for Economics and Business Research chief executive Douglas McWilliams, who put forward his view that the current credit squeeze – which has been called a crisis by some commentators – is no more than a “blip”, which comes at a time when the world economy is in the middle of its longest ever period of growth. McWilliams said that the “megatrend” of growing global prosperity, which he said was far more significant in terms of numbers of people affected than the Industrial Revolution, would not be “derailed” by the temporary lack of funds for M&A activity, consumer credit and corporate finance – although it would cause temporary pain for several countries’ economies, notably the US and the UK’s. He predicted negative growth in the UK financial sector next year, as banks and other financial services companies shed staff, restructured their organisations and tightened their belts.
Chairman of HBOS, Lord Stephenson said at a well-received and energetic lunchtime speech that he was pleased to say that HBOS had divested itself of “loans we weren’t happy to hold” three years ago. In a wider context he robustly defended his view that the “end of the world is not nigh” and that the current situation is the result of an interaction of several different credit market trends.
Stephenson explained that banks have been left with tranches of sub-prime debt that they cannot syndicate which have led to losses, although as a proportion of global debt these are very low; that the “so-called run on a bank” was nothing of the kind, as a run on a bank happens when a bank does not have sufficient funds to pay back its depositors – not the case at Northern Rock, which was a victim of feverish media reporting and dramatic imagery; and that as former Federal Reserve chairman Alan Greenspan said in a recent interview with the Financial Times, ‘bubbles’ in a market are inevitable and will eventually be corrected, while the current case of overlending is well within the capability of the world economy to absorb. He noted in conclusion that he hoped governments would resist the urge to overreact in ‘fixing’ the turmoil, although adding that the tripartite regulation of the City would have to be examined.
He also put forward his view that smaller institutions might find it harder to borrow, as investors will flee to what they see as “safe capital” – namely large, stable institutions such as HBOS. “It would be a great pity if there were not a reward for prudence,” he noted.
A full report will appear in the next edition of Motor Finance