GE Capital Commercial Lending and Leasing (CLL), the segment which includes global equipment finance operations, posted $2.7bn in profits for the 12 months to 31 December 2011, representing a 75% increase on the figure for 2010.

GE Capital’s profit for the fourth quarter was $1.6bn, an 11% increase from the previous three months. GE Capital CLL increased profit 13% in the fourth quarter, recording $777m in earnings compared to $688bn in the three months to 30 September 2011.

GE as a whole posted profits of $14.8bn, up 20% from $12.3bn in 2010.

Jeff Immelt, chairman and chief executive of GE said: “GE Capital, like our industrial businesses, is stronger and competitively positioned to win.”

He said he expects GE Capital to experience double digit profit growth in 2012 while continuing to shrink its balance sheet and strengthen its capital and liquidity positions.

“We expect continued volatility in 2012 and have prepared for it by investing in new products and technology, expanding our growth market footprint and taking important steps to strengthen risk management. GE Capital is safe and secure and rebounding sharply. We are restructuring our businesses in Europe to reflect market conditions,” he said.

Article contributed by: Leasing Life

The deal is an extension of the existing arrangement between the companies in the UK, in which the Berkshire-based company acts as one Sony’s vendor finance partners.

Peter Savage, managing director of Azule, said the German market had been crying out for a broadcast leasing specialist.

Azule’s relationship with Sony FS began in 2008 when it was asked to provide a specialised broker network for Sony FS’ UK leasing program.

Savage said Sony FS is now writing three times the amount of business it had been doing at that time, and considers his brokerage to have played a major role in this increase.

He said the success of the UK programme had prompted Sony to commission Azule to review the German market.

“Azule approached Sony with a proposal to carry out an analysis of the German market,” Savage commented.

“We did, and identified a number of German lessors that it would be advantageous for Sony FS to have in their portfolio for broker-style introductions. We then launched in September.”

Michelle Simpson, programme manager for Sony FS, said Sony wanted to enhance its existing lease offering with De Lage Landen by introducing a dedicated media and broadcast broker model alongside it, and said Azule’s network and sector understanding made it perfectly positioned to provide this.

Savage believes it is Azule’s experience and knowledge of a specialist sector which has allowed it to be one of the first UK brokers to successfully break into the German lending market.

“We’ve been warmly received by the German market; they recognise the fact the UK has got something they’ve been wanting for along time – a specialist in broadcast and media,” he said.

“In the broadcast market the UK is probably ahead of the rest of Europe in terms of the maturity of the leasing market so a lot of manufacturers are doing things in the UK they are unable to do elsewhere in Europe.

“Germany is a similar sized broadcast market and therefore is suitable for similar leasing deals.”

Azule and Sony FS’ German partnership already has its first deal proposal underway.

Article contributed by Fred Crawley, Editor – Leasing Life

De Lage Landen has reported first half net profit up 52% from last year, taking revenue beyond pre-crisis levels.The Netherlands-based asset finance company, a subsidiary of Rabobank, made €154m in the six months to 30 June 2011 compared with €101m for the same period last year.

Net profit for the same period in 2007 and 2008 was €109m and €112m, respectively.

Ronald Slaats, chief executive of De Lage Landen, said “With a first half year like this, I am bullish on our near future.”

The report also revealed a 1% increase in the company’s credit portfolio to €25.9bn.

Slaats said De Lage Landen had worked hard over the last year to increase the quality of its portfolio through a focus on risk management and said that strategy had started to pay off.

He said additional factors such as higher interest income and higher residual value gains on leased cars and other lease products, which fuelled a 13% increase in De Lage Landen’s non-interest income to €239m, helped the company to a successful six months.Despite the positives, looking ahead Slaats remained cautious.

He said: “We do not know yet what the impact will be of the recent uncertainties in the economic environment and financial markets in many geographical areas. So we are prudent in our prognosis.”

Article contribued by: Leasing Life

These were the words spoken by Chris Sullivan, chief executive of corporate banking for RBS in the UK, at a conference held recently by systems provider Sword Apak.

The comment was made in a discussion on the future of manufacturer finance programmes, in which Sullivan expressed his expectation that the majority of manufacturers would soon need to partner with banks in order to achieve access to capital at a sustainable price.

He argued that the cost of funding would only increase in the years to come, putting margins under pressure and forcing manufacturers either to think like banks in terms of the management of their treasury functions, or enter into risk-sharing partnerships with banking partners in order to provide both wholesale and retail finance.

Speaking exclusively to Motor Finance, Leasing Life’s sister title, Sullivan explained: “Of course, every set of circumstances is unique and a generalisation can’t be made. However, banks are increasingly acting as both advisors and funders to manufacturers, and even when manufacturers are providing finance themselves, it is likely that they are borrowing from a bank to fund that lending.”

Colin Maddocks, director of network development for Mazda Europe, agreed that manufacturers had to begin thinking about more than just “moving metal” in their provision of finance programmes.

“In working with bank partners across Europe, we have had to think about cost and profit implications for them – so we have learnt to think like a bank,” Maddocks said.

Change expected

Across the industry, business leaders have responded to the issue with unanimous agreement that captive strategy will have to change to reflect shifts in the capital markets, but have stopped short of sounding the death knell for the traditional captive model.

Black Horse managing director Chris Sutton commented: “Money costs are undoubtedly going to rise in the short term to counteract inflation, as economies continue to recover and money supply stimuli reduces. Manufacturers have been particularly active in supporting sales of new vehicles by providing subsidised finance, but as interest rates rise, this becomes increasingly expensive, especially around provision of zero/low rate APRs.”

Sutton contended, however, that manufacturers need not necessarily be at a disadvantage to banks in terms of access to capital. Traditionally, Sutton argued, banks have had the ability to raise funds to lend out at lower rates than major corporates, but that this had changed as the risk premiums attached to financial institutions had increased in recent years.

“Some corporates can now raise funds in their own right more cheaply than via their bank – depending on the strength of the balance sheet,” he said.

“Since the credit crunch, the importance of liquidity and availability of capital is now much more apparent for both banks and manufacturers. With any joint arrangement the profit element is usually required to be shared, which can place pressure on the margins needed.

“Personally, I believe that we will still see both models in operation in the future – some manufacturers will want, or need to, rely on banks to provide funding and some will be able to raise their own funding by other means.”

Adapting for survival

Meanwhile, consultant and former head of Mazda Bank, Ian Dewsnap, agreed that there would be ways for the current captive model to survive into the future.

“I would not for one minute argue with Darwin. Evolution is constantly going on, and the only constant is change – or whatever expression you care to use. However, I would not buy the argument that captives are dead for a while yet. To answer the question of how they will change, however, one needs to look beyond the UK.”

A dry securitisation market, poor access to funding and consequent higher operational costs, Dewsnap posited, had made some smaller markets no longer viable for single brand “true” captives.

He explained: “Creative solutions have emerged, with some manufacturers taking back ownership of wholesale and moving their point of revenue from wholesale to retail. Some have set up white label operations, others perhaps JVs.

“Certainly the landscape has changed, and the days of the captives in every market their parent brand operates in are gone.”

The survival of wholly owned captives, Dewsnap said, will depend on both the motives and the financial positions of their parents. The German captives in particular, he argued, had particularly strong treasury operations, and might prosper “for a long while yet.”

At the same time as these comments were being made, one German-owned captive – BMW Financial Services – made a muscular demonstration of its group’s confidence in its profit-making ability by completing the acquisition of ING Car Lease by fleet subsidiary Alphabet.

It was certainly enough to cause fleet provider Leasedrive’s commercial director, Roddy Graham, to re-evaluate his view of the viability of the captive model.

“Until last week, I would have agreed with the view that partnership with banks will become the only realistic way for manufacturers to offer finance programmes. However, the news that BMW has acquired ING Car Lease for a not insignificant consideration, and the fact that they will need to feed the business ongoing with a huge level of asset finance, suggests that this particular captive is alive and well.”

If, then, the captive model still has life in it, what will be the next phase of its evolution?

Dewsnap thinks that the situation may change dramatically once Chinese brands start to develop momentum in Europe.

“As and when the Chinese brands have a market share foothold, it will be interesting to see what their decision might be for the use of what seems to be plentiful capital access. Will they partner with existing players, bring Chinese banks with them as partners – or set up their version of the traditional captive model in larger markets?”

While few would disagree that those manufacturers who have chosen to ally themselves with banks will have an advantage in preserving their margins in a pricier funding climate, it remains to be seen whether truly in-house funders will fall foul of their traditional methods, or find new ways to compete.

Article contributed by Fred Crawley, Senior Reporter – Leasing Life & Motor Finance

The asset finance businesses of some of Europe’s biggest banks have made a strong start to the year. Some are reporting double-digit growth in the first six months, in stark contrast to struggling retail bank divisions.

The banks’ leasing businesses are confident about their prospects amid growing demand from small businesses and manufacturers, and for technology assets.

Lombard, the asset finance business which is part of Royal Bank of Scotland – which is 84% owned by the UK taxpayer – will lend more than £5bn (€5.7bn) to British businesses over the next year – up 20% from the previous year. In addition to wheeled assets, it will also lend more on less publicised areas like technology and, in particular, plant and machinery.

Alexander Baldock, managing director of Lombard, one of the UK’s biggest asset leasing companies, told Leasing Life it was seeing the strongest growth in manufacturing, the small and medium-sized enterprise (SME) sector, and commercial transport (buses and haulage).

Many companies delayed renewing assets during the recession but have begun to invest again.

“Most businesses are six years into what is usually a four-year replacement cycle [for assets],” Baldock said.

The various types of asset finance, such as taking out an amortisation loan, has helped those companies to start investing again as economic recovery increases demand for goods. The flexibility of asset finance has proved especially attractive to business during a time of credit scarcity, said Baldock.

Other bank leasing subsidiaries have also reported a significant improvement in the market.

Société Générale Equipment Finance (SGEF) increased new loans by 19% during the first quarter of this year. Excluding factoring activities, SGEF’s new business was €1.8bn. In Germany, sales increased by 26%. In France, SGEF signed an agreement with La Banque Postale, the banking subsidiary of the French national postal service, for an equipment leasing partnership.
Euro growth

Specialised Financial Services, which includes the French bank’s consumer finance, equipment finance, operational vehicle leasing and fleet management activities, grew its net banking income by 7% to €728m, compared to the same quarter a year earlier.

Dutch asset financing provider De Lage Landen is confident about its prospects after reporting a net profit of €201m last year, a 79% increase in comparison to 2009. It expects a net profit of around €120m for the first six months of the year, and around €280m for the full year. Achieving these figures would create a record year for De Lage Landen.

Chief executive Ronald Slaats said the company’s optimism is because vendors are selling more and requiring financing. “Our international network is helping us in this regard,” he said. “Vendors want international solutions and want to sell into more than one geography.”

Slaats added that vendors in Asia, for example, want to sell more outside their home market, into countries such as Brazil.

Finland’s Nordea saw a 13% increase in sales for its asset and sales finance arm for the first quarter of the year compared with the same period last year. Nordea Finance chief executive Jukka Salonen said the main increases were seen in the small businesses and consumer segment, notably in consumer credit and car finance. Sales have increased in smaller equipment and yellow goods, he added.

Salonen also said there had been more sales to smaller businesses than larger corporations. He suggested the latter group is more hesitant to invest given uncertainty about the future and because it is able to rely on existing capacity.

Salonen added smaller businesses, especially in the transportation sector, are increasing consumption which is giving more work to companies. “Construction has been another area that is picking up”, he said. “We hope the bigger companies will start their investments in the near future.”

In motor finance, banks’ asset finance businesses have also made a good start to the year.

Arval, part of French bank BNP Paribas, has predicted “strong growth” for 2011, especially in rapidly expanding new markets, such as Brazil, India and Turkey, where growth rates have been over 50%.

Growth in banks’ asset finance arms may help them counter criticism that they are not lending enough to small businesses.

A spokesman for the British government’s Department for Business Innovation and Skills said: “The government is committed to increasing the diversity of finance available to businesses, and encouraging businesses to think carefully about what sort of finance is most suited to them.

“Asset-backed finance is one potentially useful source of finance, particularly for businesses who are looking to update or replace their equipment.

“Solutions such as leasing and hire purchase can help facilitate growth, as they offer finance when new equipment is needed to expand a business.”

Regulation

However, despite good prospects, some bank asset finance businesses could be affected by cuts in certain markets as their parent companies ration their lending.

Barclays, for example, has decided it will no longer provide asset finance to companies with turnover less than £5m a year, saying the need for asset finance among larger companies was not shared by its smaller customers.

A spokeswoman for Barclays said that Barclays Corporate continues to provides asset finance to coporates, including health care, transport and the renewable energy sector.

Barclays continues to offer a “broad range” of finance for SMEs, she added.
Although leasing typically produces a higher return on equity than more risky unsecured bank loans, asset finance “is not particularly well understood at a senior level at some banks”, warned George Tonks, a partner at asset finance consultancy Invigors.

Tonks said banks may decide to reduce lending in their asset finance arms and prioritise more high-profile lending such as unsecured bank loans when preparing for the capital requirements of Basel III, which is due to introduced by the end of 2012.

Article contributed by Leasing Life

Muir first joined Northgate as group accountant in 2003, before becoming group financial controller in March 2004 and UK finance director in May 2006.

He has also worked for Deloitte LLP and has a degree in economics and accountancy from Newcastle University.

Bob Contreras, Northgate chief executive, said, “Chris has an extensive working knowledge of the business and has worked for Northgate in a wide range of finance positions, demonstrating that he has the capability to be an outstanding finance director.”

Northgate offers LCV hire and fleet management services in the UK and Spain.

Article contributed by Leasing Life

Just 8 months out of bankruptcy protection, American lender CIT has posted stronger-than-expected Q2 profits of $142.1 million, on $1 billion worth of new business.

It has secured 2.5bn of new funding globally since January, including an unprecedented £100 million facility reserved for UK vendor finance, as well as repaying nearly two thirds of its high-priority debt.

What all this means for its leasing competitors in Europe is that, if they weren’t figuring an active CIT in to their mental view of the market ahead, they should be doing so now.

Back in the game

Speaking exclusively to Leasing Life, the company’s global head of Vendor Finance, Ron Arrington, said that CIT was “aggressively out in the market”, with a view to increasing business.

Arrington has good reason to be bullish – his vendor finance division is occupying a more prominent position than ever within CIT, after 2009 saw the company sell or reorganised wide swathes of peripheral business in order to focus on its most profitable segments.

The total volume of VF business written during H1 2010 was down year-on-year in absolute terms, but occupied a significantly higher proportion of CIT’s total lend than it did a year earlier.

Furthermore, this prominence looks to increase – of $2.5 billion in funding secured so far this year, some $1.8 billion is earmarked specifically for Vendor Finance.

One particularly interesting component of this is a £100 million conduit facility closed in London and destined for the UK arm of the business, the first such facility that CIT has arranged outside North America.

For players in the UK IT vendor finance market, many of whom have been very busy in pushing into the gaps left by CIT’s recessionary troubles, this is a clear signal that their old rival is back in the game.

Getting the model working

There is still some way to go, however. For CIT, success has always meant borrowing money cheaply and lending it at a higher rate – a strategy that left it in such trouble when cheap capital vanished from the market in the aftermath of the credit crisis.

To get the model working again, CIT has two major challenges. The first is to gain access to new and inexpensive sources of liquidity, a cause which the healthy $2.5bn of credit facilities closed so far this year would seem to support.

Arrington says Vendor Finance has closed nearly $2 billion in funding facilities since the start of the year, adding “as we look to continue diversifying funding sources, liquidity is not under pressure.”

CIT’s second challenge – to reduce the cost of debt repayments in the aftermath of Chapter 1 – is also being tackled at a rate that has shocked many analysts.

Some 4.5 billion of the group’s first lien debt has now been paid back, comprising 60 percent of what CIT came into 2010 with. The balance, meanwhile, has been refinanced at a lower cost.

“The diversification of funding and the actions the company has taken to pay down our higher cost debt is helping the margins in our business” said Arrington.

In order to help repay debts, CIT has sold off just 5 per cent of its total balance sheet in the last year, including over $1 billion in corporate finance and student loan receivables and a joint venture with Canadian lender CIBC.

Also divested was CIT’s equipment finance business in Australia and New Zealand, a decision that Arrington said was made “to reduce exposure to the consumer lending market”.

More than just price

While CIT’s core funding model returns to health, CIT’s Vendor Finance division in Europe will concentrate on profitable sales aid leasing, primarily in the IT, Telecoms and Office equipment markets. 

Arrington commented that, while customer investment appetite remains “somewhat muted” in these sectors, the constant need for businesses to replace and upgrade high-tech assets had incurred a healthy level of demand for finance.

The relative health of these sectors poses its own challenge to CIT, however. Many UK and European lessors, also noticing the opportunities to be had in technology finance, have been prospecting the arena for vendor schemes of their own over the last two years. 

CIT will face stiff competition from these peers as it carves out a larger space in the market, but Arrington is confident of his division’s “strong value proposition” in Europe – despite the fact that it will still be limited in its capacity to drive down prices.

“Our value proposition goes beyond price” said Arrington, referring to a “best in class” service offering involving recently upgraded CRM systems, a strong level of contact with vendor partners, and high flexibility in supporting different resellers’ various routes to market.

Healthy Tension

In a sign of its increasing appetite, CIT last month began transacting business through a new vendor programme with fast-growing PC manufacturer Lenovo.

In addition to seeking out new relationships such as this, Arrington’s division will be turning its attention to “maximising business” within existing programmes – news that will be music to the ears of partnered resellers looking to achieve more finance sales.

Will it be difficult to balance reseller’s demands for greater conversion of finance proposals with the need to ensure healthy returns through selective credit control?

“In good times as well as bad,” says Arrington, “there is always a healthy tension between credit approval rates and new business volume. We will continue utilising our best in class credit scoring models, and also the expertise of our people – they know our resellers and their customers’ businesses really well and this helps ensure prudent lending.”

Overall, Arrington is optimistic that CIT’s reputation for global reach and service provision, together with the decisive steps it has taken towards redressing its financial situation, will give it what it needs to push ahead in a high-pressure IT finance market – “We will be a key player, and we will be a global player.”

Will CIT regain the place it occupied before the onset of the credit crisis? Arrington’s answer is simple – “ We’ve made tremendous progress so far”

Article contributed by Fred Crawley, Senior Reporter – Leasing Life & Motor Finance

VRL — Analysis, insight, intelligence

First up, AIM-listed Ultimate Finance, whose new venture, Ultimate Asset Finance (UAF), is to be led by Andrew Ribbins, one of the key figures behind combined lender/broker Voss Finance.

Voss, incorporated in 1995, remains active in leasing to SMEs, with a focus on plant and machinery assets. It is a niche lender with a risk pricing model towards the higher end of the spectrum, and yet has suffered virtually no bad debt over the course of the recession. Write-offs only arose from the multiple finance controversy surrounding plastics manufacturer Global EPP – an issue that affected most of the UK’s lessors.

High level of control

Coming from this background, Ribbins will build a relatively small operation at UAF, lending in the single digit millions within its first year and keeping a high level of control over quality of deals.

In the months to come, UAF will move into a new office, which will also house a new regional division of Ultimate’s mainstream business.

Deals will be sourced initially from Ribbins’ own contact book, and from Ultimate’s invoice finance customer base.

Yet, while Ultimate Finance accepts business from intermediaries in its mainstream invoice finance business, its new asset finance subsidiary will not be doing so until it has built up its funding base further.

Currently, UAF has secured funding lines with Siemens Financial Services and Singers Corporate Asset Finance.

Ultimate, which has offices in Manchester, Bristol and Tunbridge Wells, also launched a trade finance business in March – another example of the company’s holistic approach to commercial finance provision.

Furthermore, the future looks comfortable for the group, with the half-year leading up to 31 December 2009 seeing Ultimate make a pre-tax profit of £191,000 (€232,000, up from £140,000 a year earlier) despite a turnover reduced from £2.2 million to £2.9 million.

While UAF will not be rubbing shoulders with the giants of UK leasing any time in the near future, its foundation represents another point in favour of the school of thought which says that asset and invoice finance can work better when under the same roof.

Asked whether there had been any difficulties in providing leasing through Ultimate’s wider sales force, who have traditionally sold invoice finance, Ribbins said: “I don’t think it is too tough to cross train for hire purchase and leasing sales.

“This is a highly professional sales force, and they know how to look at a customer balance sheet, which is fundamental to both product sets.”

“Considering that our leasing product is not too complicated, I think it will be straightforward to spot opportunities for sale and leaseback, for example, with customers looking to acquire cash by factoring book debt”

Meanwhile, another lender with the ability to provide both invoice finance and leasing products is Southampton’s State Securities. The company celebrated the 30th anniversary of its incorporation last month and predicts a promising future in lending across multiple product lines.

Best first-quarter sales

According to sales director Barry Hutchings, who joined State in November 2009, the company has seen its best first-quarter sales total in two years, and during the first half of 2010 expects to double the amount of business it signed during the equivalent period in 2009.

By the end of the year, Hutchings says, annual new business volume is targeted to reach 250 percent of the 2009 total – a dramatic return to form for the subprime specialist.

Another return to form for State could be in property lending. Having withdrawn from the commercial mortgage market over two years ago, the company has only undertaken property loans to support other lending requirements, with standalone commercial mortgage opportunities avoided.

This situation is under review, however, with commercial mortgage products looking likely to once again form part of State’s core offering through brokers. Heavily involved in this discussion will be Graham Jacobs, the property expert who joined State in 2007 after helping the company to secure its new premises.

Hutchings also sees potential for State to grow through its invoice finance offerings. “We do see a particularly strong opportunity to grow our factoring business,” he said.

Hutchings added: “We will continue to produce innovative financing solutions for customers with more challenged credits, including refinance and turnaround finance buy-outs, which a growing number of SMEs require and for which we are renowned.”

More good news

Finally, more good news has come from Microlease, the UK-based (but increasingly global) test equipment lessor with backing from LDC, the private equity arm of the Lloyds Banking Group.

The company’s revenue for the year leading to 31 January totalled £30 million, considerably up on last year’s figure of £23 million, with earnings before interest, taxes, depreciation and amortisation up from £10.6 million to £13.6 million over the same period.

The results represent the fourth year in which Microlease has exhibited more than 30 percent growth, following the management buyout which saw current CEO Nigel Brown take control of the business in 2006.

Despite its name, Microlease is as much a dealer of high-precision test equipment as it is a lessor of such kit. However, according to Brown, it is the offering of financial products, including both long-term leasing and short-term rental, that has really powered growth in the last year.

To see how well the company integrates leasing into its general equipment sales, one only has to look at the authorised technology partner arrangement Microlease has had in place with manufacturer Agilent since November last year.

As a result of this programme, Microlease is now responsible for the lion’s share of Agilent’s sales volume within the territories of the UK, Ireland and Italy, and has been offering a full suite of financial products alongside the Agilent equipment range.

For the first half of the year, says Brown, leasing penetration rates in the Agilent ATP programme was only 8 percent. By the end of the year, however, 36 percent of programme sales were being conducted through leasing of one kind or another.

Microlease has also observed a significant shift in the sectoral uptake of leasing services, with the aerospace and defence industries growing much more receptive to acquiring assets on lease – a trend Brown thinks will continue as the government customers of defence contractors suffer budget cuts in the years to come.

In 2006, the telecoms and R&D industries provided 90 percent of Microlease’s financial services business – now, the defence sector contributes an equivalent volume.

According to Brown, LDC, Microlease’s private equity backer, is “very happy” with its investment in the company, having backed its acquisition of the European operations of US competitor Telogy in September last year. The financial support also helped put Microlease in a position to acquire long term funding lines with RBS and its asset finance subsidiary Lombard, Brown said.

Keen to invest further

He added “I am confident that, if we needed more funds to make further acquisitions, LDC would be keen to invest further”, but confirmed that there were no acquisitions currently being directly pursued.

Microlease recently attempted to acquire an American business that had filed for Chapter 11, but did not win the bid. The target company was eventually sold for $26 million (€21 million).

Looking forward, Microlease expects revenue to increase from £30 million to £50 million over the 2010 financial year, with earnings before interest, taxes, depreciation and amortisation rising from £13.6 million to £18 million.
Article contributed by Fred Crawley, Senior Reporter – Leasing Life & Motor Finance

VRL — Analysis, insight, intelligence

Image copyright: Flickr

Fred Crawley and Brendan Malkin report on these overlaps in asset based lending and asset finance  and the opportunities they pose to finance companies.

Andrew Bullard hardly has a spare moment these days. Ever since he took up his position as head of business at Cashflow UK Limited, an invoice finance brokerage, he has spent much of his time travelling around Britain, meeting customers and catching up with business partners. On most weeks, he spends just two days at his offices in Eastbourne.

There is good reason for all this activity. As well as wanting to significantly increase the number of deals Cashflow UK brokers, he also wants his company to return to the number one spot it held in the factoring intermediary sector before it was bought by Bibby in May 2008.

One way he wants to achieve this is by sharing more business with asset finance brokers.

This works by what Bullard calls a process of “reciprocity”: Cashflow UK forwards leasing deals to leasing brokers, which in return pay Cashflow UK a commission for each deal assigned; in exchange, lessor brokers give Cashflow UK their factoring and invoice discounting deals.

Mark O’Neil, joint managing director of Vantis’ Commercial and Asset Finance division (VCAF), thinks that this is a good idea for the industry. VCAF introduces both invoice finance (IF) and asset finance (AF) business, and is aware of how different the two funding markets are.

Focusing on the differences

For a start, much more is going on in invoice finance – O’Neil says there are between 75 and 80 active funders in the market, with at least three new ones (Team Factors, Innovation Finance and Partnership Finance) emerging in the last six weeks alone.

In addition, without wanting to make the asset finance market look commoditised, variance between IF funders comes down to a lot more than rates.

IF is an “evergreen” product – where payout is continuous and the agreement has no fixed term – and according to O’Neil, “the wrong client matched up to the wrong funder can cause big problems later in the relationship”.

As such, deals are much more likely to satisfy both parties in the long run if they are introduced by a broker with a wide range of IF funder contacts.

Reciprocity schemes such as those operated by Cashflow UK mean that AF brokers can be sure of clients’ IF applications reaching appropriate funders, rather than all being fed through one or two invoice financiers that the broker happens to know.

Cashflow UK is not alone in being open to IF proposals from lease brokers, either.

Hilton-Baird (HB), the current leader of the invoice finance broker market, is a firm that is taking a greater and greater interest in asset finance.

HB managing director Evette Orams says that co-operation between AF and IF introducers is certain to increase in years to come, and HB has placed plenty of IF proposals sourced from asset finance brokers.

Orams reinforces the importance of getting the right funder for the right deal, and explains that HB’s standard practice is to introduce a proposal to two or more funders, in order to ensure the right fit.

Unlike most lease brokers, HB does not ‘package’ deals for underwriting – it simply introduces opportunities to lenders, making multiple introductions more feasible.

Interestingly, HB has also begun to pass on some asset finance requests from IF customers to funders it knows in the AF sector. Since these deals tend to be those for which HB cannot find an appropriate ABL solution, they tend to be fairly specialised, and thus placed with firms employing committee rather than “scorecard” underwriting.

Also, and interestingly as a potential source of commission to AF brokers, Orams says that HB can often find an ID or factoring solution to a customer request for asset finance.

This means that for brokers with equipment proposals that are difficult to place in today’s limited funding world, it might be worth speaking to an IF broker like HB to see if an “asset-based” resolution can be found instead.

Finding a new niche

Other brokers back in asset finance, meanwhile, have embarked upon a similar course of consolidating on the overlaps in the leasing and factoring markets.

However, rather than offloading deals that are not core to their business, these brokers instead are seeking to bring together finance products.

The reason for doing so is simple. While the recession, on the one hand, has meant companies are deferring their investment in capital expenditure, on the other it has given rise to a proliferation in refinancing requirements.

Structured products that might include a mix of asset finance and factoring can help fulfil these demands.

Some brokers have embarked on an aggressive push to attract these types of deals, and in doing so have effectively re-labelled themselves as turnaround specialists.

Norton Folgate, for example, has just launched an ABL offering, aimed specifically at restructuring situations.

Managed personally by managing director Robert Keep, the new product set is designed to bridge the gap between traditional asset finance and more complex corporate finance transactions involving equity as well as debt.

Among the tools Keep intends to deploy for this purpose are not just asset and invoice finance, but receivables finance, inventory and stock finance, debenture-backed term loans, commercial mortgages, chattel mortgages and access to a special “corporate rescue” fund.

Jumping on board

Bullard made clear that there are other brokers looking to enter the turnaround space.

“There are more Phil Betts-type people wanting to get into the marketplace,” said Bullard.

Bank-owned leasing companies have also not been blind to the benefits of bringing their asset finance and factoring businesses closer together.

Barclays did this some years ago when it formed Barclays Asset & Sales Finance, and ING Lease Group followed suit back in late 2007.

Last month, La Tribune, the French newspaper, reported that Credit Agricole was merging its leasing and factoring operations. Many others are doing the same.

Other brokers, too, are finding ways to capitalise in the new leasing-factoring revolution.

The leasing-factoring alliance, however, is still in its infancy, and there remains plenty of room for growth.

Bullard says around 10 percent of his business comes from sharing leasing deals with asset finance brokers, but he expects this to grow to 30 percent in the medium term.

“We’ve recently forwarded two vehicle deals and two hard asset deals to asset finance brokers, but there is plenty more we could be doing,” he says.

Article contributed by Fred Crawley – Senior Reporter, Leasing Life & Motor Finance

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Since its formation through the merger of Base Commercial Mortgages and asset finance lender Ruffler bank by private equity house AnaCap in June 2009, Aldermore has certainly been busy.

September 2009 saw the addition of Absolute Invoice Finance to the bank’s balance sheet, while steadily increasing panels of brokers in both asset finance and commercial property divisions have ensured growth despite an extremely quiet winter for the industry as a whole.

Most recently, the purchase of Heritable Asset Finance’s portfolio at the start of March saw around £35 million added to the Aldermore pot, virtually doubling the bank’s lease book to make up a quarter of its total assets.

The next step

All very impressive, given that Aldermore’s IT infrastructure for asset finance is not yet finished. Division head George Ashworth oversaw the completion of its first phase last month, allowing back office support for the bank’s current sales model.

This model is aimed at financing “hard” assets with good resale potential in the event of a customer default, in sectors such as construction, materials handling, agriculture and manufacturing.

At the moment, deals with a value of £100,000 form the majority of Aldermore’s asset finance lending. “However” says Ashworth, “with the next phase of the IT build, we can start to bring down deal value, and support a smaller ticket business.”

This expansion into smaller-value, higher-volume business will support Aldermore’s development of broker-led business, a policy which Stephens says applies across the bank, in invoice discounting and property lending as well as in asset finance.

Casting the net

Currently, Aldermore uses a panel of 28 asset finance brokers, and is in a position to consider further introducers. In commercial property lending, for example, the bank is adding four or five companies to its intermediary roster each month.

Beyond broker business, the new IT system will provide Aldermore with the means to make significant moves into the vendor finance space. At the moment, Ashworth’s division manages a handful of sales aid programmes, but it will soon be capable of developing new ones and accepting schemes introduced by brokers.

While asset finance business has been centralised at Aldermore’s head office in Peterborough until now, a network of business development managers (BDMs) is being put in place in order to give more comprehensive regional coverage.

These BDMs will work from the same locations as Absolute Invoice Finance, which came into Aldermore’s possession with a fully fledged network of regional offices. This congruence, says Stephens, will not just be physical. Cross-selling is central to Aldermore’s strategy, as one would expect from a company formed from lenders in three different fields of finance provision.

First on the list

From here on, Aldermore’s strategy is unambiguous. “Our overall strategic objective is to be recognised as a bank providing first class service” says Stephens. “We want to be one of the first names on any SME’s list when it comes to acquiring equipment in an asset class we support, such as materials handling.”

The way to achieve this, in the opinions of both Stephens and Ashworth, is for Aldermore to identify further markets of interest and make rapid progress in building a name in them. For an example of this strategy, one need only look so far as the move into the Professions finance market through the purchase of HAF.

For now, Aldermore’s greatest strengths are the speed at which it can make decisions, and the liquidity – albeit not limitless – with which it can back them up. If it can keep such tight lines of communication as it takes on more staff and more business, its name will be heard more and more often in UK leasing.

Article contributed by Fred Crawley – Senior Reporter, Leasing Life & Motor Finance