At the recent LeaseuropeEurofinas Joint Annual Convention, the heads of many of Europes leading financial institutions gathered together to share information and to find out their peers views on the current issues making waves for everyone in the credit and leasing industries - and, of course, to say hello to old friends and new faces, and to catch up on industry gossip.
Jo Tacon reports from Edinburgh on the Leaseurope/Eurofinas
conference, and finds out what is on the minds of Europe’s credit
providers
At the recent Leaseurope/Eurofinas Joint Annual Convention, the
heads of many of Europe’s leading financial institutions gathered
together to share information and to find out their peers’ views on
the current issues making waves for everyone in the credit and
leasing industries – and, of course, to say hello to old friends
and new faces, and to catch up on industry gossip.
Karel Schellens, CEO of lessor De Lage Landen touched on one of the
key themes of the conference when he stated that in the future, car
leasing will be seen as a service rather than a commodity – “as
solving transportation issues rather than just leasing out cars”.
Lars-Henner Santelmann, chairman of VW Leasing picked up on this
point as he noted that more than 60 per cent of the world
population will live in a city by 2060, according to current
forecasts. He predicted that mass urbanisation will have a
two-pronged effect on vehicle lessors, with, on the positive side,
drivers more willing to move from owning cars outright to “new
models of car ownership” such as pay-per-use, which could bring
large benefits for lessors who are able to adapt to the shift in
thinking. On the negative side, Santelmann said, people who move to
cities reduce their mileage, meaning demand for cars falls –
although this is good news for the environment.
Santelmann noted that the growing importance of the environment on
the political and social agenda opens up a wealth of opportunities
for lessors who are able to mould their product offering
accordingly. Total cost of ownership – including carbon emissions
‘costs’ – will play an ever-greater role in vehicle choice, he
predicted, and full-service leasing, with its transparent cost
system, is ideally placed to take advantage of this. He added that
manufacturer-owned leasing companies have a certain advantage over
independents as they can consult with the research and development
departments on new models, and gain the information they need in
order to set accurate residual values. This process can also
encourage R&D departments to give greater weight to the future
residual value of a new model when designing it, which in turn aids
the lessor.
The green agenda
As well as the environment, corporate social responsibility was a
hot topic on and off the conference agenda. 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.
He added that the green argument feeds into the ‘credit crunch’
issue – another issue which was frequently mentioned by speakers
and attendees – 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.
The credit squeeze and ‘megatrends’
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 Stevenson 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.
Stevenson 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.
Credit channels and distribution
The Eurofinas sessions brought together speakers from a variety of
background for stimulating discussion of the evolution of market
distribution channels. Umberto Filotto, secretary general of
Assofin and professor at Rome’s University Tor Vergata noted that
the UK is a mature market for consumer credit; although we fall
short of the US, where per capita consumer credit amounts to around
€8,000, the UK, with per capita consumer credit at roughly €5,000
is still well ahead of the rest of Europe, with most countries’
comparable figure around €2,500. Filotto said that in mature credit
markets such as the UK, equity release and secured lending are more
prevalent, as the home becomes just another asset, a point picked
up by César Paiva, deputy managing director of Sofinco. In his
presentation on evolving customer needs and business models, Paiva
commented on the convergence of consumer finance and home finance
in mature economies such as the UK, where the selling of mortgages
creates opportunities for banks to cross-sell other products –
including perhaps motor finance.
Dirk Staudenmayer, head of the consumer affairs, health and
consumer protection unit at the European Commission looked at the
difficulties of cross-border consumer finance in Europe, which has
a notional market of 500m consumers, but which presents formidable
challenges to operators, even disregarding the fixed difficulties
of distance and language.
Staudenmayer said that while the Commission was looking at ways to
facilitate cross-border business, there were limits to how much
directives can achieve before they begin simply to add to the
burden of doing business. Financial illiteracy was another area for
concern, Staudenmayer said; with the current focus in the UK and
elsewhere on treating customers fairly, he asked how finance
companies can ensure fair treatment when, for example, nearly a
quarter of the UK population is unable to grasp that 10 per cent of
£350 is greater than £30. Financial education needs to be tackled
by member states’ governments, he said.
Susana Albuquerque, director general of the Portuguese association
ASFAC explained the work her association has been doing to educate
consumers in basic financial know-how through a series of
television programmes, which talk to viewers in language they will
understand and teach them how better to handle their personal
finance – a model for the Finance & Leasing Association to
consider, perhaps?
Channels changing
Jean Coumaros, director of Oliver Wyman Financial Services looked
at how channels can be used to optimise customer relationship
management as the paradigm changes from one where the channel is
just a client interface to one where the channel defines the
opportunity. He identified four trends which are changing channels
in consumer finance: the rise of the internet, use of
intermediaries, new technologies and the evolution of the branch
concept. The internet makes customers more price and
promotion-sensitive, he said, as potential borrowers use aggregator
sites to compare different companies‘ offerings. Strong analytic
capabilities are needed to deal with price-driven customers, he
said.
The bank branch’s evolution was the topic of the presentation
by Marc Luet, CEO of mass retail and consumer finance at Fortis,
who explained how Fortis had gone into Germany a year ago as an
unknown player and built significant brand awareness through the
use of the “credit shop” concept. Rather than building a retail
banking network, Fortis chose to open a few dozen high street
credit shops, where finance products are presented to customers in
anon-traditional way, with emphasis on choice and flexibility in
their bright, welcoming interiors which are more like fashion
stores than old-fashioned bank branches. The prospect that other
banks could follow Fortis’ lead in other markets – including the UK
– is a very real one. Could this be a way for banks to steal a lead
in selling motor finance products, directly to consumers?
For Peter Cottle, senior director at Capital Bank the dealer
channel for motor finance is very much alive and well – but it is
by no means secure. He called on the industry to get the message
across to the public that point-of-sale finance can be as good
value as any other way of paying for a car, and far more convenient
to boot. After all, as he pointed out, “better finance sales
techniques lead to more car sales” – as potential buyers are won
over by the ease of paying for their new vehicle. And as noted by
Graham Smith, senior VP for external and environmental affairs at
Toyota Motor Europe, the current trend for smaller, more
environmentally friendly cars means lower payments and therefore
lower profits for motor financiers. However, with 1.2bn vehicles
predicted to be in use by 2020 there is still plenty of business to
go around; now it is up to industry players to keep abreast of
developments in consumer credit and leasing to ensure that they
capitalise on the opportunities open to them.
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