Another threat to mainstream banks comes from the rise of internal banking at large corporations that then fans out into providing external services. Siemens Financial Services (SFS) has only been in operation since 1997 but already boasts an E8bn balance sheet, of which 75% relates to non-Siemens business.
With a capital adequacy ratio of 13%, SFS would list at roughly 343 in The Banker’s Top 1000 ranking alongside Mexico’s Grupo Financiero Banorte. It excels in structured finance, and equipment and sales financing.
As banks review their lending relationships and core businesses (CitiCapital sold its vendor finance leasing in Europe to CIT in July), firms such as SFS and GE Capital are waiting in the wings to pick up what they do not want. And what they do not want is turning out to be quite substantial.
In a recent survey of European corporate finance priorities, SFS found that 11% of current relationship lending volumes are expected to switch to alternative financing techniques (asset-backed, leasing, private equity) by the end of 2005. “Some of this switch to alternative finance will be facilitated by the banks themselves, but a proportion will be funded by non-bank finance companies,” says SFS’s survey report.
SFS UK chief executive Jonathan Andrew (previously at Warburg and GE Capital) does countenance that the banks may take their concentration and consolidation process too far and come to regret quitting good businesses. But, for now, SFS and others like it are making 25% returns in these so-called niche businesses that seem from the outside to be large and rather fundamental.
Brian Caplen
