Lease accounting Exposure Draft published

Here we go again! The International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) published for public comment a revised Exposure Draft (“ED”) outlining proposed changes to the accounting for leases. The leasing associations still don’t like it, even though it’s been heavily modified since the last ED in 2010.

The UK’s Finance & Leasing Association didn’t like the lack of unanimity among the boards’ members when arriving at the modified ED and remain concerned that the revised draft rules will still be difficult for business users of leasing to implement. There would be a letter on its way from the FLA in due course.

Leaseurope’s view was that it would hinder business growth, both the conceptual soundness and the operability of the proposals are highly questionable, and it posed a risk to the European economy. As a result, Leaseurope considers that they will not bring about a sufficient improvement in financial reporting to warrant the cost and complexity of changing the existing approach to IFRS lease accounting. Furthermore, it called on Europe’s policymakers, as well as on the many European businesses that use leases and rentals convey this message to the standard setters.

ELFA didn’t like it either, saying, “ELFA supports the FASB and IASB as they seek to establish a sound, workable accounting standard that applies to the assets and liabilities arising from lease transactions. We find, however, that the lease accounting model as proposed in the long-awaited exposure draft will not result in a significant improvement in the quality or reliability of financial information, will not faithfully depict the economics of equipment leases, is unduly complex and will impose a compliance burden on lessees

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UK businesses call for tax cuts

Almost a third of UK businesses believe a cut in taxes is vital to encourage growth and get the economy back on track. This is according to research findings from the latest Close Brothers Business Barometer which has shown that 30 percent of SME owner managers wanted to see a cut in VAT in the last budget announcement.

However, whilst the registration threshold increased marginally from £77,000 to £79,000, the standard VAT rate remained at 20 percent. Managing Director of the Broker Division at Close Brothers Asset Finance, Brian Dhenin said, “Business owners are looking for measures that will stimulate growth and drive the economy forward. Trading conditions remain very tough for small firms, but they are resilient. In fact, our barometer shows that a fifth of SMEs in the UK have plans for expansion in the next 12 months.

“However, to achieve their full potential, firms must ensure they have . .

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Acquis double success

Acquis Insurance Management (“Acquis”) have announced that Aldermore Asset Finance has successfully implemented their Financed Equipment Protection Programme, and is enjoying the benefit of partnering with Acquis. 
George Ashworth, Managing Director of Aldermore Asset Finance, said, “When we choose a business partner, it is an essential part of the selection process that we identify businesses that are as closely aligned to our corporate values as possible. The corporate values of Aldermore are Reliable, Expert, Dynamic and Straight Forward . . 

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And the Winner is . . .

Leasing World’s two series- feature on Why Does Leasing Exist as an Industry delivered many contributions from senior leasing practitioners, each addressing the issue from a different perspective. The whole feature (DOWNLOAD HERE) makes for stimulating and provocative reading. The eventual winner, Artti Aurasmaa, duly received his prize of a bottle of Bollinger (see photo) after publishing the notion that the leasing industry is missing its own “Big Idea” and needs what he calls “a Dream” to give it long term purpose.

Reading all the entries was hugely involving and thought provoking, each entry had its own take of the subject, and each view was based on real experience of the industry. Dr Peter Hahn of the Faculty of Finance at Cass Business School explored if overused words like leasing gain negative connotations; George Lynn applied Cartesian dualism to the question, but in the end it came down to the assets and developing asset-focussed strategies that work for customers in specialised sectors; Chris Boobyer pointed to a lack of proper promotion of the industry in earlier years, but that, recession or no recession, there is no other tailored funding solution available for the purchase of new and used equipment.

Dr Bill Dost asked what are we doing to continually prove we should exist? Leasing was a no-hassle way of acquiring equipment by businesses that could not purchase it outright; City Slicker thought the answer was obvious, there will always be a need for instalment credit. George Ashworth was drawn into the debate, and saw the answer grounded deeply in the historic roots of asset finance, the facilitation of acquiring capital assets, and for the future, serving clients would remain at the core of the industry’s existence . .

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Spring Drinks a little sobering

“There remains a great deal of uncertainty in the markets we operate in,” said Stephen Sklaroff, Director General of the Finance and Leasing Association (“FLA”) at the FLA Spring Drinks Reception , which follows, in the footsteps of tradition, the FLA’s Annual General Meeting. And although these actual words were from the Spring Drinks Reception of two years ago, in 2011, the message today, in 2013, seems to be exactly the same. 
The figures need closer scrutiny, new asset finance new business volumes, excluding big ticket (there isn’t any these days) was down 10 percent March 2013 over March 2012, and 5 percent down Q1 2013 over Q1 2012. Within those numbers, Broker introductions for the quarter were 20 percent down on a year ago, and direct business was 4 percent down. The bright light this quarter was sales finance, although with FLA figures there may be cars in the mix, which may be masking the true equipment picture.
First of all, what is going on with broker volumes, and is it a worry? FLA lessors in this segment presumably are not worried, in the short term at least, because with ING Lease leaving the table, those remaining have seen very healthy increases in their new business volumes. This windfall is attracting new entrants, however, and may lead to some uncomfortable elbow-digging around the broker business table in due course. 
But the drop in business volume cannot all be about the ING shortfall not being taken up yet, the SME market in which brokers operate is blowing hot and cold these days, one month can be dismal, and the next a record. How much of it is due to deal constraints imposed by funders, now that the expression “fits the box” has become a part of the brokers’ lexicon? The maths says that someone in the broker supply chain is being squeezed, and for the moment it looks like it may be the smaller brokers, who cannot meet funders’ volume commitments, and who don’t have the cushion of annuity income to pay the bills every month.

What about the outlook for asset finance generally? Well, there are several ways to look at it,

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FLS extended at last, so . . ?

Alternative finance providers like leasing, factoring, and invoice discounting companies are now included in the Bank of England’s flagship Funding for Lending Scheme (“FLS”), which is also extended by a year to 2015. Under the original arrangement unveiled last August, the FLS was due to end in January 2014.
Alternative finance providers in the UK have good cause to feel aggrieved about the FLS resisting opening up the scheme up till now, so what took Osborne and King so long? One likely explanation is that they felt that it wouldn’t have much of an impact on the big picture, and it probably won’t in terms of brute numbers, although this new flush of finance will definitely help the alternative finance providers, and the SMEs that couldn’t get finance before but do this time round. The government was facing a perception problem over its help for SMEs, because SME borrowing keeps falling, and the UK’s growth is fluttering around the zero mark, so this announcement will allow them to say they are doing everything they can.
The government and the Bank of England must be disappointed that earlier FLS funding via the mainline banks failed to help SMEs. The funding had a positive impact in the mortgage market, but as far as the SME market is concerned, the funds went to the banks’ existing preferred customers, giving them loans they would have taken anyway, at a cheaper rate. However the FLS is being watched closely by other countries, as a potential model for their own growth problems.
Stephen Sklaroff, Director General of the Finance and Leasing Association, said, in a rather low-key statement . .

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Is Certificate of Acceptance always conclusive?

In a decision that can be applied more widely than simply the aviation sector, the case of Olympic Airlines SA-v-ACG Acquisition [2013] EWCA Civ 369 addressed if an aircraft complied with the terms of delivery, when it was subsequently found that the aircraft suffered from multiple and serious defects.

It was a fairly complex case where ACG leased an aircraft to Olympic, and Ritchie Irvine of DWF LLP has reduced it to a simpler form for us. The case concerned a “dry” lease of a 17 year old Boeing 737. Olympic was a well known Greek flag carrier. ACG was an aircraft lessor. Its business was asset finance. It did not itself either operate or maintain aircraft, as is quite typical of aircraft lessors.

Olympic accepted delivery of the aircraft from ACG by completing and signing a “Certificate of Acceptance”, having completed a pre-delivery inspection. It is of note, that the pre-delivery inspection did not undertake a disassembly of the aircraft and so was necessarily restricted in its scope. It was also found to have been “hurried”. After acceptance, the aircraft was found to suffer from multiple and serious defects (which could only have been found once the aircraft had been disassembled).

Olympic failed to make the payments. ACG terminated the lease and claimed repayment of the lease payments. Olympic counterclaimed for damages for breach of contract . .

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D&D to assist Professionals

D&D Leasing UK Ltd. has announced that it has recently negotiated a funding facility exclusively for the professional loans, VAT and Insurance markets. This will enable D&D to continue to serve the Entrepreneurial and SME sectors, while allowing for steady growth in its product base. 

Managing Director Bill Dost commented, “We’re thrilled to be able to offer a product that is so obviously needed in the market place, especially by our segment of customers, it’s our hope that between these three avenues we’ll be able to fund businesses on their most basic grass roots levels and assist them with growing their enterprises. He continued “In addition to this, our Asset Finance Business will now look to fund Light Commercial Vehicles, and trucks and trailers, specializing as we do with owner operators and smaller businesses. D&D Leasing has a commitment to serve the SME market aggressively, and where the big banks cannot, we will continue to stand with our customer base.”

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What top leasing CEOs in Europe think about the future

Here's the Leaseurope Business Council report, what our top CEOs think about the economy and about innovation in the future, Agree or Disagree, the fact is it's good they get together and take the time to help the industry.

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European Investment Fund for SME leasing

The European Investment Fund's ("EIF") central mission is to support Europe’s small and medium-sized businesses ("SMEs") by helping them to access finance. EIF designs and develops guarantee and venture capital instruments, which specifically target this market segment. Their FACT SHEET, produced together with Leaseurope, tells everything you need to know on how it can help the leasing industry support Europe's SMEs.

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Econocom targets Mighty Middle Multinationals

 Econocom has issued its Strategic Plan for 2013-2017, entitled Mutations. The plan is designed to enable Econocom to double in size in five years whilst consolidating profitability. In order to achieve this objective, Econocom is establishing itself as a service company specialising in integrating digital solutions and offering innovative financial services. To that end, the group is enhancing its digital services expertise, in particular in networks, security, cloud and application integration, via both organic development and further targeted external growth transactions.

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Leaseurope 2012 Segment analysis

The results of Leaseurope’s 2012 Segment Survey show improvements between 2011 and 2012, but a deterioration across all indicators towards the end of 2012. Of the total outstanding portfolio reported, 41 percent is attributed to equipment, 31 percent to real estate, 22 percent to passenger cars and 6 percent to commercial vehicles.

All asset categories saw improvements in profitability between 2011 and 2012, with the exception of real estate, which saw a steep drop. Equipment leasing saw profitability ratios exceeding 30 percent for the first three quarters of 2012, and passenger cars and trucks experienced slightly higher figures around 40 percent. However, all these asset categories suffered significant drops in profitability in the fourth quarter (see Figure 1). Real estate saw a lot of volatility in profitability over the course of 2012, culminating in a median loss of -17 percent in the fourth quarter.

All asset categories experienced an increase in the cost/income ratio between 2011 and 2012. Cost/income remained relatively stable over 2012 for real estate (around 35 percent) and equipment (around 40 percent), although both saw an increase in the fourth quarter. Both vehicle categories exhibited the highest cost/income ratios at the end of 2012, despite commercial vehicles typically enjoying much lower values in previous quarters.

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Sberbank Leasing orders 12 Boeings

Sberbank Leasing, a subsidiary of Russian Bank, Sberbank, has ordered 12 Next-Generation 737-800s, for operating leases to Transaero.

Valued at more than $1 billion at current list prices, the market believes the deal will help lay the groundwork for developing an environment for finance and operational leasing of imported aircraft in Russia. Sberbank will follow international standards for airplane leasing, allowing it to provide air carriers with modern, world-class finance solutions.

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Riga exit for GE?

GE Money Bank is considering giving up its banking license as one of the potential scenarios for exiting the Latvian market, a local newspaper has reported. Apparently, GE Capital announced its intention of leaving the Latvian market more than a year ago, and the bank was to be sold to Russian financial corporation “Otkritie,” but the Financial and Capital Market Commission did not allow the deal.

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Deadline extended

European leasing companies wishing to take part in the 2012 Leaseurope Annual Ranking Survey should please visit the Ranking page at www.leaseurope.org. Companies that took part in last year’s edition have to re-register again this year by clicking on the above link and following the same procedure.

Completing the survey is simple and should take about 15 minutes. The aim of Leaseurope’s Ranking Survey is to establish a precise picture of European leasing firms and their activities using data straight from the companies themselves. Companies willing to participate are asked to provide their new business and outstandings for the year 2012 and a ranking table is produced based on this information. The ranking is broken down . .

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