Fleet News

Lloyds HBOS deal set to create UK's biggest lease company

The impact of the creation of the country’s biggest leasing operation is being assessed following the announcement that Lloyds TSB is set to takeover rival banking giant HBOS in a £12.2 billion deal.

The deal still needs shareholder and regulatory approval, although HBOS executives are recommending it is supported.

Among the billions of pounds of assets the companies hold are the two biggest leasing companies in the country.

Lloyds TSB owns Lloyds TSB Autolease, which has a fleet of more than 129,000 vehicles and HBOS owns Lex, Britain’s biggest leasing company with a fleet of more than 251,000 vehicles.

Should the Lloyds TSB buyout go ahead, as it is expected to by the end of the year, a new leasing giant with more than 380,000 vehicles will be created.

And with Lloyds TSB already looking for £1 billion of savings from the takeover, it is widely speculated that the two leasing companies will be amalgamated into one giant.

The managing directors of both Lex and Autolease have moved to reassure their customers that it is business as usual.

“I can’t comment on this transaction, as it subject to shareholder approval,” said Jon Walden, managing director of Lex.

“However, I can comment on where the industry is heading and it has been my view for a long time that there will be further consolidation in the leasing market.

“From our point of view, nothing has changed. We are very much focused on delivering customer service.”

Nigel Stead, managing director Lloyds TSB Autolease said: “The brief at the moment is ‘it is business as usual’ and we do not anticipate that this will change for some time to come - we are talking weeks or months, not years.

“While the two lease arms are significant businesses in their own rights, when you look at the scale of what has happened with the two banks and the issues that need to be resolved, we come a long way down the list.”

The cause of the takeover announcement came as HBOS saw billions of pounds wiped off its value this week amid frantic trading, which saw its share price at one stage collapse to less than £1.

However, new rules introduced to ban speculators from driving down the price of banks by short-selling – betting heavily on the price of a company falling – saw shares leap on Friday, with HBOS trading at about £2.30, although this is still more than 70% below its 52-week high.

Lloyds TSB is offering 0.83 of its shares for each HBOS share, valuing them at 232p each.

If the deal goes through, it means shareholders will effectively swap shares in HBOS for ones in the enlarged Lloyds TSB Group.

Despite the fast-paced nature of the deal, it isn’t a certainty.

It still needs to be approved by shareholders and ratified by city watchdog the Financial Services Authority.

HBOS is recommending that its shareholders back the deal and the government has said it will waive competition rules to get the transaction through on public interest grounds.

Industry consultant Colin Tourick said of the deal: “I was already expecting an increased activity in the mergers and acquisitions market in any event, because of the general downturn in the used car market and the economy.

“If this deal goes ahead, the impact will be very significant. They will be a colossus in the industry and the economies of scale will be enormous.”

Jay Parmar, head of legal services at the British Vehicle Rental and Leasing Association said: “These are obviously turbulent times for everyone involved in the banking sector, but it is important to remember that vehicle leasing works on secured lending and has a much lower risk profile than many other forms of credit.

“It would be unwise to speculate on any impact this merger may have.

"Our industry has experienced a lot of consolidation over the years, but such changes have not affected the standards of customer service delivered to customers.

“In fact, leasing a vehicle makes perfect business sense during the current economic downturn.

"The customer gets the reassurance of paying fixed monthly rentals and is shielded from falling vehicle values and unforeseen maintenance costs.

"As an alternative to vehicle ownership, leasing frees up a customer’s own capital, which can be invested where it will deliver real value for their business.”

However, other analysts suggest that Lloyds may sell off such non-core businesses.

David Rawlings, managing director of Business Car Finance said the uncertainty will do neither company any favours.

"The current deal wouldn't fill me with confidence that HBOS/Lloyds was the kind of place that I want to take my business if I was a big fleet,” he said.

“I have spoken to some big fleet operators anecdotally and they don't know what to do at the minute as the future of the two leasing companies is so uncertain.”

Additional reporting Daniel Attwood and Emma Cooper


WHAT THE EXPERTS ARE SAYING

Nigel Stead, managing director Lloyds TSB Autolease
“With such a significant acquisition and merger, there is still a huge amount of work still to be done.

“The future strategy is still a long way off.

“The brief at the moment is ‘it is business as usual’ and we do not anticipate that this will change for some time to come.

“But we are talking weeks or months, not years.

“While the two lease arms are significant businesses in their own right, when you look at the scale of what has happened with the two banks and the issues that need to be resolved, we come a long way down the list.

“The respective lease arms are both excellent businesses, trading well in what is a very challenging environment.

“Our message to our customers is that it is business as usual and we will continue to service them to the best of our abilities.

“What will happen in the future has yet to be decided.

“This deal was wrapped up in a few days and the two leasing businesses, while significant in themselves, are, in the bigger picture, not so significant.

“This is still not a done deal and may not be wrapped up until the turn of next year.”

Jon Walden, managing director of Lex
“I can’t comment on this transaction, as it subject to shareholder approval.

“However, I can comment on where the industry is heading and it has been my view for a long time that there will be further consolidation in the leasing market.

“This will be through major competitors in the market and we have led the way through white labelling.

"Changes will also be caused by the consequences of what is going on in the financial services market.

“It is good for the leasing market to consolidate, both for suppliers and their customers.

“From our point of view, nothing has changed.

"We are very much focused on delivering customer service.

"Our number one priority is and always will be our customers.”

Industry consultant Colin Tourick
“I was already expecting an increased activity in the mergers and acquisitions market in any event, because of the general downturn in the used car market and the economy.

“If this deal goes ahead, the impact will be very significant.

"They will be a colossus in the industry and the economies of scale will be enormous.”

Jay Parmar, BVRLA head of legal services
“These are obviously turbulent times for everyone involved in the banking sector, but it is important to remember that vehicle leasing works on secured lending and has a much lower risk profile than many other forms of credit.

“It would be unwise to speculate on any impact this merger may have.

"Our industry has experienced a lot of consolidation over the years, but such changes have not affected the standards of customer service delivered to customers.

“In fact, leasing a vehicle makes perfect business sense during the current economic downturn.

"The customer gets the reassurance of paying fixed monthly rentals and is shielded from falling vehicle values and unforeseen maintenance costs.

"As an alternative to vehicle ownership, leasing frees up a customer’s own capital, which can be invested where it will deliver real value for their business.”

David Rawlings, managing director, Business Car Finance

"The current deal wouldn't fill me with confidence that HBOS/Lloyds was the kind of place that I want to take my business if I was a big fleet.

"I have spoken to some big fleet operators anecdotally and they don't know what to do at the minute as the future of the two leasing companies is so uncertain.

"Until there is some sort of certainty customers are not going to know what to do.

"It's possible that they will merge the companies, for their accountants the priority has got to be about saving money.

"My gut feeling is that they will merge them.

"If they do merge the two businesses together then it's going to be a leviathan.

"It would be in its own super league.

"I don't know what the reaction of clients would be to the changes and a possible merger.

"When it comes to fleets, people are looking for relationships and dealing with people that they know.

"Next year we're going to see a lot of interesting things happen.

"People are already making new decisions because of tax changes and these banking changes are just something else to add to the pot.

"2009 was going to be interesting, now it's going to be amazing.

"There will be implications for those further down the leasing chain, especially in terms of credit lending.

"There will be a lot of implications for those down the credit line.

"There'll be knock on for brokers and and some leasing companies.

"The decision will be ricocheting for years, it'll certainly have a huge impact on the leasing and fleet sector."

 

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