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LEASEUROPE Shaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPE CEO of ING Lease Hol PowerPoint Presentation
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LEASEUROPE Shaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPE CEO of ING Lease Holding. An unprecedented enlargement or a partnership for European development. A lain Vervaet Chairman of LEASEUROPE CEO of ING Lease Holding.

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slide1
LEASEUROPEShaping the future of the European leasing industry

Alain Vervaet

Chairman of LEASEUROPECEO of ING Lease Holding

an unprecedented enlargement or a partnership for european development

An unprecedented enlargement or a partnership for European development

Alain Vervaet

Chairman of LEASEUROPECEO of ING Lease Holding

slide3
Historic event in Europe’s history

May 1st, 2004

Unprecedented enlargement

  • EU = 25 Member States
  • Moving Eastwards
  • 8 Central and Eastern European countries
  • 2 Mediterranean countries
slide4
New challenges
  • Smooth transition from 15 to 25 Member States
  • Rapid economic integration in the 1990s:

- Privatization programmes

- Investment liberalization

- Business oriented economy

  • EU-25 closer to Ukraine and Commonwealth of Independent States (CIS)
slide5
GDP and Population in 2004
  • EU-25 GDP = Euro 10.040 billion
  • Just higher than U.S.A GDP
  • More than 2.5 times higher than Japan GDP
  • EU-25 total population = 455 million people
slide7
The leasing industry in the US
  • Largest single leasing market in the world
  • New business in 2003 = US$ 224 billion

(30% of total business investment in equipment)

  • Over 5 years:

- 3 to 5 million more jobs

- Between $100 billion to $300 billion more real GDP

slide8
The leasing industry in Japan
  • Total leasing volume in 2003 = US$ 68.8 billion
  • Leasing volumes constant
  • Lease penetration in Japan = 8 %
slide9
The leasing industry in Europe

LEASEUROPE,the European Federation of Leasing Company Associations

26 national associations

  • 1350 leasing companies
    • 193 billion € new investments in 2003 (217 billion € incl. hire purchase for Finl. & UK)
    • Estimate for 2004 = 234 billion € (incl. Hire purchase for Finl. & UK)
    • 470 billion € outstandings (497 billion € incl. hire purchase for Finl. & UK)
    • Estimate for 2004 = 546 billion € (incl. Hire purchase for Finl. & UK)
    • 48,000 jobs
    • Financing around 15% of the gross fixed capital formation in Europe
  • Members represent 90% of the leasing industry in Europe
slide10
Decisions of the Federation are taken by:
    • Board = representatives of 8 clusters
    • General Assembly
    • Committees and Working Groups
      • Accounting & Taxation Affairs Committee
      • Working Group Basel II
      • Legal Affairs Committee
      • Statistics and Marketing Committee
      • CEE Countries Working Group
      • European Auto Forum
slide11
Discussion partners of LEASEUROPE
  • The EU Commission
  • The European Parliament
  • IASB
  • The Basel Committee
  • The other Federations of the bank and finance industry located in Brussels (e.g. Eurofinas)
  • Sister Federations at international level
    • ELA (USA)
    • CFLA (Canada)
    • AELA (Australia)
slide12

Leaseurope is member of official consultative bodies of the European Commission, namely

EU Banking Experts Group

FORUM

WORKING

GROUPS

Leaseurope

DIALOGUE

EBIC – European Banking Industry Committee

slide13
LEASEUROPE’s mission is to:
  • represent the interests of the leasing industry in Europe
  • promote and lobby for acceptance and general use of leasing
  • provide information for
    • members
    • partners
    • public at large
  • conduct research and economic studies

The Board decides about priorities, which are reflected in the work of Committees and Working Groups.

slide14

44.3 %

Europe = almost 45% of the global leasing market

36.7 %

15.5 %

1.2%

0.8%

1.5%

Source: London Financial Group Global Leasing Report 2003 + Leaseurope data

slide15

Geographic distribution of European leasing activities (Leaseurope in 2003)

European leasing market dominated by 4 big countriesGermany + UK + France + Italy = 69% of the market

slide16

24 Bio € HP

European leasing market - a sound market (Leaseurope in 2003)

+10% average annual growth in the last 10 years (1990 to 2003-HP)

2003

New investments: 193 b€Outstandings: 478 b€

2003 (incl. hire purchase in Finland and the UK)

New investments: 217 b€Outstandings: 497 b€

2004 (estimates + H-P)

New investments: 234 b€ (+ 7.6%)Outstandings: 546 b€

(+ 9.7%)

slide18

Equipment leases - -Analysis by type of customer (Leaseurope in 2003)

Leasing is increasingly used by all categories of customers.

slide19

Real estate leases – Analysis by type of building &

primary contract term (Leaseurope in 2003)

slide22
Penetration rate of leasing at national and European levels (Leaseurope)
  • 2003: 14.1 % of European assets financed by leasing
  • Leasing exceeds 40% of external financing of capital goods
slide23
Summary:
  • European leasing market (Leaseurope)
    • Solid growth over the last 10 years (+ 10%)
    • Car leasing dominates
    • 4 major countries = 69% of the market
  • Leasing
    • Market share
    • Accessible source of financing
    • Important employer (48,000 persons)
    • Major player in SME’s development and growth
slide24

WHY LEASE?

Source: ELA, October 4, 2004

Avoid

Technological

Obsolescence

Convenience /

Service

Need for

Efficient

Capital

Solutions -

Structuring

Knowledge

Conserve

Cash

Rent a

Balance Sheet

Asset

Management

Manage Tax

Liability

slide25
ELB - The European Leasing Barometer
  • Indicator of the confidence level of European leasing companies in the economic activity and expectations for the coming months
  • Some 101 leasing companies (Leaseurope) in 24 countries
  • Survey three times a year
slide26
European Leasing Barometer (ELB)Jan/Feb 2005http://www.leaseurope.org/elb/EuropeanLeasingBarometer.html

European leasing companies less optimistic in the economy and its evolution for the next three months

leasing companies and their economic environment
Leasing companies and their economic environment

European leasing companies more optimistic about their own activities than the macroeconomic environment or their domestic leasing market

geographical analysis
Geographical analysis

UK & Scandinavia most pessimistic (-38% & -23% respectively) while France, Benelux, Switzerland and Mediterranean countries have a more favorable outlook.

slide29
ELB – the European leasing barometer

Conclusions:

  • Change in methodology resulting in more sensitive measure
  • After period of high expectations in 2004, confidence has fallen to reach levels similar to those in Sept 2003
  • When ELB is broken down into its components, most pessimistic expectations are for the economic situation in the respondent’s home country
  • ELB and EC’s services confidence indicator follow similar trend (long term interpretation)
  • Next ELB survey: April/May 2005
slide30
Leaseurope’s Top 100 ranking

(next ranking June 2004)

  • Since 2001
  • Annual survey (on voluntary basis)
  • Groups and individual companies
  • Top 100 leasing companies in Europe
  • In 2003, overall production = € 122.3 billion
  • Top 20 companies = 65% of total value of new

contracts

leaseurope 200 5 onwards
Leaseurope – 2005 onwards

Main legal issues: CCD & AML

Consumer Credit Directive

  • First proposal in September 2002
  • Ongoing work with the Legal Affairs Committee
  • Last available document = amended proposal including EU Commission endorsement of EP 1st Reading April 2004

- Art. 3-2-b : confirmed exclusion of “hiring agreements except where they provide for the title to pass to the hirer eventually”

- Art.3-2-ba : exclusion of “leasing agreements which do not create any obligation to purchase the object of the agreement”

slide32
Main legal issues: CCD & AML

Consumer Credit Directive (con’d)

  • EBIC meets EU Commission: March 14, 2005
  • Release of new official proposal by EU Commission: end of April
  • 1st EU Council Experts Group meeting: May 25, 2005
slide33
Main legal issues: CCD & AML

Consumer Credit Directive (con’d)

Scope

  • If not included in the scope of the CCD

left to EU states to regulate" (e.g. joint & several liability.)

  • Are excluded: leasing operations (sic); credits with amounts over Euro 100,000; mortgages or credits secured by mortgages (a.o.)
slide34
Main legal issues: CCD & AML

Consumer Credit Directive (con’d)

3 regimes:

  • Full harmonisation(for pre-contractual and contractual information, APRC)
  • Mutual recognition(for credit intermediaries, responsible lending and duty to advice, all provisions linked to contractual  rules like right of withdrawal)     
  • Transitory regime: 6 years towards mutual recognition (for early repayments and information on overrunnings)
slide35
Main legal issues: CCD & AML

Anti-Money Laundering

1991: 1st Anti-Money Laundering (AML) Directive (limited to drugs offences; applied only to financial sector)

2001: 2rd AML

June 30 2004: 3rd proposal for AML, extending scope of previous directives to terrorist financing (reflects recommendations of the OECD-based Financial Action Task Force against ML)

slide36
Main legal issues: CCD & AML

Anti-Money Laundering

February 14, 2005: Leaseurope (EBIC) started lobby action

Position Paper:

  • Definition of  beneficial owner = entity having control of the customer (holding at least 25%, instead of 10 %, of  shares
  • Definition of politically exposed persons = restricted to third countries (not EU) having prominent public functions
  • Request for "full harmonisation" of provisions (instead of minimal) for competition reasons
slide37
Main legal issues: CCD & AML

Anti-Money Laundering (con’d)

At stake =

Third parties (intermediaries) working with lease/finance companies (agency relationship) due to:

  • large amount of work connected with typical "outsourcing" agreements;
  • if term  "outsourcing" maintained = problem for credit/lease distribution at point of sale or via Internet;
  • third parties "synonymous" with institution concerning "customer due diligence"/ customer identification and verification requirements only (third parties should not  be forced to comply with any requirement of directive that institution must meet).  
slide38
Main legal issues: CCD & AML

Anti-Money Laundering (con’d)

  • March 7, 2005: EBIC tabled amendments with EP LIBE Committee (MEP Nassauer = Rapporteur)
  • April 25-26: scheduled vote in EP LIBE Committee
  • May: vote in plenary
  • June 7: discussion in ECOFIN Council
leaseurope 200 5 onwards1
Leaseurope – 2005 onwards

Regulatory issues: A new world order

  • Capital adequacy requirements or Basle II
  • IFRS

Will leasing stay independent from Banking Supervision?

slide40

Basel II: A Risk sensitive approach

  • The new proposal will replace the 1988 accords

A better

evaluation

of risks

Capital

allocation

according

to encountered risks

Implications on return on equity

basel ii leaseurope s aim

Extensive knowledge(business & academic level)

  • Scientific studies
  • working group

Privileged interlocutor with regulators

Basel II: Leaseurope’s aim

Objective

Ensuring that leasing business receives sufficient attention when it comes to defining capital adequacy ratio

Tools

basel ii leaseurope s input
Basel II: Leaseurope’s input
  • Discussion forum within the industry
  • List the challenges of the leasing industry with identified solutions
  • Identify best practices
  • Supported with further research
  • Bargaining power at the European level

1: Physical inspection related problems

2: Residual value

basel ii leaseurope s input1
Basel II: Leaseurope’s input
  • Actively participates in the consultative process
  • Maintains close contacts with regulators at the European Commission and Basel Committee
capital requirements under basel ii will more closely reflect the true level of underlying risk

BIS I

Standardised

IRB Foundation

IRB Advanced

Capital Requirements Under Basel II Will More Closely Reflect the True Level of Underlying Risk

Capital Requirements Change in Europe – BIS II vs. BIS I*

RWA as % of Assets

LargeCorp

ProjectFinance

Other

Retail

SME

Mortgage

Leasing

Banks

Sovereign

Other

Source: Mercer Oliver Wyman report (The New Rules of the Game), June 2003

slide45
Lower average loss rates than vanilla lending due to structured repayments

Less customer transparency and lack of ‘product’ standardisation allows for higher margins

Greater collateral control where funding linked to specific assets

On average RAROC in value-added lending and asset finance are amongst the highest available in wholesale banking where balance sheet leverage is involved

Pressure on mid-market lending due to higher capital charges under Basel II

RAROC

Asset Finance

Value Added Lending

Vanilla Lending

Revenue

As a High Risk-Adjusted Return Business, General Leasing Is Set to Gain From the Realignment Of Capital

Source: Mercer Oliver Wyman

slide46

EU-Regulation 2005 - IFRS

consolidated accounts

annual accounts

publiclytradedcompanies

Obligation toapply IAS/IFRSfrom 2005

MS option* to apply IAS/IFRS

non publicly-tradedcompanies

MS option* to

apply IAS/IFRS

MS option* to apply IAS/IFRS

lease accounting still a debate
Lease Accounting: Still a Debate …
  • Dissatisfaction with economic ownership concept (on- or off-balance of assets and liabilites)
  • New Approach implies fundamental changes to accounting concepts
slide48
Information on Leaseurope’s Website
    • Information on EU regulations
    • Studies and position papers
    • Statistics
    • The ELB
    • Top 100 leasing companies
    • Others
slide49
Some trends and questions in the industry
  • M&A lead to a vast network controlled by some 15 leasing families having substantial market share in nearly every European country
  • Captives, main banks and US controlled companies taking the lead
  •  Pan European actors increasing the importance of cross border leasing?
slide50
Looking Eastwards
  • Leasing has deep roots in Europe
  • Leaseurope has special links with Central and Eastern European countries
  • Special Working Group for Leasing Companies in Central and Eastern Europe
  • Seminar for leasing managers
  • Next Seminar, in Belgrade April 26-27, 2005
slide51
Your personal invitation

Leaseurope Annual Conference

October 3-4, 2005

Cascaïs, Portugal

You are most welcome to join us.

slide52
LEASEUROPE

Shaping the future of the European leasing industry

Avenue de Tervuren, 267B – 1150 BrusselsTel. +32 (0)2 778 05 60fax +32 (0)2 778 05 79e-mail: leaseurope@leaseurope.orghttp://www.leaseurope.org

slide53
LEASEUROPEShaping the future of the European leasing industry

Alain Vervaet

Chairman of LEASEUROPECEO of ING Lease Holding