LEASING NEWS AND DEVELOPMENTS - INTERNATIONAL
[This page lists news and developments in International leasing - please do visit the Indian leasing news and developments by clicking here.]
Read on for chronological listing of events, most recent on top, or go to a specific section by clicking on the topics below:
US banks were going gung-ho on car leases a couple of years back, but in year 2000, they have learn the lessor the hard way: car leasing is not their cup of tea. A report on Monitor Daily says that US banks wrote USD 78 billion of auto leases in 1999, but have lost hundreds of million dollars by way of losses this year. Some, such as First Union Corp., have already quit financing vehicles. Others, including Bank of America and Bank One are scaling back. Among the non-banking finance companies, GE Capital is also not offering car leases of late.
The reason for the losses are falling prices of cars. Operating leases of cars carry the risk of car coming back if the prices fall. Reports, quoting Consumer Bankers Association, say that 56 percent of vehicles were returned when leases ended, up from 39 percent in 1998.
Conseco Finance has decided to take in Gary C. Wendt, the man credited with turning GE Capital Services into a financial-services powerhouse, as the chief executive to turn around the beleaguered financial company, says a report in Monitordaily.
Gary Wendt is widely known in the financial services industry - he won credit for building what was a relatively small piece of GE, its finance business, into an international financial powerhouse that rivaled the biggest banks in the nation. Wendt took over as CEO of GE Capital in 1990 when the bulk of the growth in GE Capital occurred. Wendt left GE Capital in December 1998 amidst some friction with Chairman Welch, but by this time, GE Capital had become the biggest single piece of the company and a growth engine with nearly 30 separate financial businesses.
Market gossip was abuzz about Wendt taking over as Conseco chief. Conseco has merely USD 55.5 billion in assets, less than one-sixth the size of $345 billion-in-assets GE Capital. Conseco has been facing problems since the firm's costly acquisition of sub-prime lender Green Tree Financial, later renamed Conseco Finance. Conseco also made significant revisions in its accounting policies due to its securitization gains - which we reported in our securitization website - click here..
Conseco has also been trying to find a buyer for its Conseco Finance consumer-lending unit, for which Lehman Brothers has been reported appointed as an arranger.
Leasing volumes in the World's largest leasing market have grown substantially. Equipment Leasing Association (ELA), USA's [http://elaonline.com] data for first quarter of 2000 shows a 43% growth in the portfolio of selected large leasing companies.
The report revealed that the total net portfolio for the key equipment lessors increased almost 43 percent compared to the 1st quarter 1999, while new business volume increased by 50 percent. The report notes "continued growth in leasing volume and portfolio over the last five quarters".
The data above should not be regarded as growth in leasing volumes in the US market, as the data is based on performance indicators of selected large leasing companies.
There are four trends clearly visible in the world of banking and finance - consolidation of institutions, globalization of operations, development of new technologies, and universalization of banking. This is the observation in an article titled The new world of banking in IMF publication Finance & Development Jun 2000.
"Financial institutions around the world are consolidating at a rapid pace. The number of institutions is declining, their average size is increasing,", says the author. The merger mania is not confined to national boundaries. This is what explains the next visible trend - globalization.
Today, one is able to see Spanish banks in Latin America, German banks in Eastern Europe, and U.S. banks in East Asia.
Globalisation itself has found strong support from developments in technology - the third force highlighted in the article. Banks and institutions of today find it more exciting to invest in e-banking than in brick and mortar bank branches. Technological developments have not left untouched traditional non-banking entities - even leasing and mortgage funding are now available on the Net. "The appearance of virtual banks and the development of electronic money for the global Internet market have created the possibility for the growth of nonbank (and, possibly, largely unregulated) institutions that provide credit to, and collect funds from, the public", says the article.
The final vehicle for this transformation of the financial sector is the universalization of banking, which is increasingly blurring the boundary between bank and nonbank financial services. This trend is already well developed in certain European countries where banks own insurance companies.
The article discusses the impact of the above changes on bank regulation.
Sri Lanka recently enacted a comprehensive enactment to regulate lease transactions in the country. Leasing is growing fast in Sri Lanka and the enactment was being considered for quite some time.
Called the Finance Leasing Act of 2000, the law applies to all finance lease transactions which are defined as such leases which amortise the whole or substantially the whole of the cost of the asset. In practice, it is difficult to decipher such leases as has been found by experience with IAS 17.
The Act requires registration as a must for carrying on finance leasing business in the Island. Existing leasing companies have been given one year's time for registration.
One of the requirements of registration is that the applicant will furnish an operating manual for the leasing business, from which deviations will not be permitted without the approval of the authorities. This, in opinion of this writer, is an unreasonable restriction and in practice, this would come in the way of business exigencies. A manual is a good guide but a bad master, and the proposed law puts the manual in the status of a master.
The law defines the rights and duties of lessor and lessee, generally in line with the UNIDROIT draft finance leasing treaty.
Grateful thanks to Mr Erangith Wijenaike for providing me with a copy of the new law.
Links Click here for comprehensive page by Vinod Kothari on Sri Lankan leasing.
The standard setters have still not resting. The flux in accounting standards that was created by McGregor proposing a new approach in lease accounting is still on.
It is learnt from sources in Finance Leasing Association, UK that the UK accounting standards board will issue a further consultation paper in 2002. It is notable that the UK accounting body issued a discussion paper entitled Leases: Implementation of a New Approach. This was also subsequently repeated by the International Accounting Standards Board.
The new approach seeks to eliminate the distinction between financial and operating leases which it is felt has not worked out well. The new approach will record lease assets and liabilities based on the benefits and costs associated with the lease. The benefits are the benefits of using the asset for the lease period, and thereafter, while the cost is the cost on account of lease payments. There will be an asset or liability depending on the fair valuation of the two elements.
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