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

Happened at last

Senior asset finance figures expressed surprise when they received the news last month that Lombard had begun lending to international superrich clients of the leasing companys parent, the Royal Bank of Scotland (RBS).

By Brendan Malkin

“We have been doing this for years, why are they only starting now?” wondered one leasing executive after reading the exclusive news story on Leasing Life’s weekly newswire.

Certainly, it is no secret that the likes of Barclays Asset & Sales Finance and SG Equipment Finance have been selling corporate jet finance to their parent’s high net worth individual clients for a number of years.

Mingled also among the surprise following the breaking of the news, which revealed that Lombard had received an international mandate to sell corporate finance to the rich clients of RBS’s Wealth Management and Global Banking & Markets businesses, there were also some cries of concern.

As well as being 84 percent owned by the UK taxpayer, Lombard is one of just a few RBS businesses equipped to offer finance to the UK’s SME sector. In fact, back in February, Lombard announced it had earmarked £3 billion (€3.4 billion) of investment for this struggling sector.

Given this commitment, to now decide to invest in wealthy individuals across the globe seemed to be something of a volte face.

“The investment in jet financing involves investing a lot of capital overseas which could be used to lend to UK corporates on business assets to help stimulate jobs in Britain,” said one RBS insider.

The truth, however, is that in the real world, RBS has not been nationalised, and that it is free to make profits in whatever law abiding way it wishes.

It is understood that the mandate does not impose many restrictions on the value of the jets Lombard can finance. Some claim Lombard’s aviation business, run by Simon Weller, is now chasing deals worth as much as $40 million (€26.7 million).

The exact amount Lombard’s business jet subsidiary can now lend annually is uncertain, although industry pundits expect it to be substantial in scale.

According to market rumours, the mandate, which was also given to Lombard’s Southampton-based yacht finance business run by Ian Braham, was handed to the Redhill-based equipment lessor after RBS’s wealth management arm, comprised of the international business, RBS Coutts, and the UK lender Coutts & Co, made clear to its parent that there was demand for jet financing from high net worth individuals, particularly in the Far East.

If this is the case, Lombard’s mandate is hardly likely to be small in scale.

Such pressure from RBS’s private banking arm also goes some way to explain why the bank’s risk policy committee approved Lombard’s application for an international mandate.

According to sources, Lombard had tried on several occasions in the past to get such a mandate, and had failed each time. As a result, until now Lombard’s 13-year-old jet business has largely focused on the UK domestic market.

But what seems odd is the timing of the new mandate.

Dublin-based RBS Aviation Capital, which finances corporate as well as commercial aircraft, was put up for sale earlier this year. This suggests that neither of these markets are of interest to RBS, presumably because it regards them as too risky.

However, the vast bulk of the $5.5 billion portfolio of RBS Aviation Capital is made up of commercial aircraft, while corporate jets make up just $450 million.

It seems, therefore, the main purpose of the sale is to offload the much larger commercial aircraft portfolio, while the corporate jets seem to be something of an after-thought.

Lombard, with its background in jet financing and asset finance generally, is the most obvious choice of company to carry out the task of providing finance to RBS’ rich clientele.

There is little doubt that Lombard is reasonably well equipped for handling larger deals, particularly as since 2000 it has financed jets as high in value as £20 million for a range of household names.

Also, the Lombard aviation business has been run by highly-respected individuals in the jet finance field. These include Mark Wooller, who left Lombard in 2004 and went on to become head of consultancy services at the Surrey-based International Bureau of Aviation, and Alex Badren, who is now not just the senior vice-president of Cessna finance, but is also said to be quite an important figure within the manufacturing arm of Cessna itself.

Historically, Lombard’s jet finance business has been regarded as the poor cousin of its richer Irish relative. In 2005, for instance, RBS told the Lombard business to focus only on the UK and on deals worth less than $4 million.

No longer is this the case, it would appear.

Brendan Malkin

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