PLUS: CUSTOMER EXPERIENCE MANAGEMENT • CORRESPONDENT BANKING • PAYMENTSSECURITY • RISK & COMPLIANCE • MOBILE SOLUTIONS • OUTSOURCING

The multiple challenges of multichannel banking

UniCredit’s CIO on rebuilding the bank’s online offer

Issue 1 2011 www.banking-gateway.com

Published in partnership with

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Future Banking | www.banking-gateway.com 3

Foreword

A solid and well functioning financial sector is instrumental in the recovery and long-term

development of Europe’s economy. The European Banking Federation (EBF) is determined to cooperate with policy makers, companies and citizens to enhance economic growth and resilience. That will be the priority for the two years of my mandate as president of the EBF.

The EBF supports the objectives of the regulatory reform in the financial sector. In particular, we seek to contribute to an efficient codification of the agreed international standards for capital and liquidity; the new European supervisory structures; and the European framework for crisis prevention and management.

Stability remains the primary objective. It can only be achieved if a balance is struck between capital increase, liquidity requirements and lending capacity. In the past many banks operated with insufficient capital, making them vulnerable to sudden economic downturns. The EBF supports the proposed Basel III capital requisites, while underlining uncertainties in terms of liquidity requirements and their potential impact on the financing of the economy.

Banks play a pivotal role as intermediaries in our economic system. Within the EU, banks serve some 400 million individuals and lend the equivalent of 144% of the EU GDP to households and businesses. Part of their strength is being able to operate at both a European and global level. In this respect, the integration of European financial services remains a mid-term objective. If national rules were adopted versus coordinated European ones, our economy would suffer. International measures must also be implemented across the international market to ensure a level playing field. The industry, policy makers and national governments need to do this together if they are to succeed.

In this context, I wish to reiterate the EBF’s commitment to support, cooperation and integration, and to fostering stability and a more resilient banking sector.

Christian Clausen was elected president of the EBF in January 2011, with a two-year mandate. This foreword is based on a policy statement he published soon after his election.

PLUS: CUSTOMER EXPERIENCE MANAGEMENT • CORRESPONDENT BANKING • PAYMENTSSECURITY • RISK & COMPLIANCE • MOBILE SOLUTIONS • OUTSOURCING

The multiple challenges of multichannel banking

UniCredit’s CIO on rebuilding the bank’s online offer

Issue 1 2011 www.banking-gateway.com

Published in partnership with Also in this issuePage 21: Massimo Milanta, CIO of UniCredit, talks to Nigel Ash about the challenge of multichannel banking.

Page 77: Michel Pébereau, chairman of BNP Paribas, on retirement and the importance of nurturing talent.

Page 80: Michael Paisley of Santander tells Michael Jones how banks can counter the latest cyber threats.

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Committed to a stable European economy

Christian Clausen, president of the EuropeanBanking Federation and CEO of Nordea Group

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Future BankingIssue 1 2011

EDITORIAL

Editor Michael Jonesmichaeljones@globaltrademedia.com Chief sub-editor Julian TurnerSub-editor Cari JolaosoFeatures editor Phin FosterFeature writers Ross Davies, Rod James, Rhian OwenProduction manager Dave StanfordGroup art director Henrik WilliamsDesigner Pascalis SpyrouEditor-in-chief John Lawrence

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Insight > ABL & securitisation

Asset-based lending has come a long way since its fledgling days in 1970s North America. The

decade began with a weak economy and high inflation, compounded by wars in the Middle East and the oil crisis. But it was during this period of extreme economic uncertainty that the industry came of age, enabling businesses to trade regardless. Asset-based lending quickly acquired a reputation as a ‘flexible’ source of funding compared with debt finance.

Its rise in popularity since the ‘70s has been largely driven by the gradual recognition of the security and flexibility that asset-based lending offers. Roll the clock forward 40 years and we have entered this decade managing similar financial challenges – a soft economy, inflationary pressures, political unrest in the Middle East and soaring oil prices. Brent crude topped $126 a barrel in May, a two-and-a-half year high. But, while it is easy to point to economic similarities between the US of the 1970s and the financial challenges we are facing in the UK today, one element has changed – asset-based lending has moved into the mainstream, having proven its worth as a

responsive, robust and reliable source of funding during

both prosperous

and more challenging financial times. The recent downturn accelerated this shift in attitude as credit became scarcer and a number of foreign banks and non-bank lenders withdrew from the market.

As of December 2010, members of the UK’s Asset Based Finance Association, (ABFA) were lending £14.9 billion to UK companies. Unlike more traditional products, lending via asset-based lending facilities grew by 8% from 2009 to 2010. The industry is very much open for business, with volumes of receivables (invoices) flowing through financiers for early payment in 2010 reaching £212 billion, a rise of 11% from 2009 and a figure that surpassed the previous peak in volumes of £208 billion seen in 2008.

Asset-based benefitsThe key advantage of the product is the higher lending levels it allows compared with an overdraft or more traditional loan product. This enables businesses of all sizes to finance any number of activities, from growth and acquisitions, to buy-outs and turnarounds, or even as a way of overcoming the challenges posed by late payments. Today, industry funds more

than 40,000 clients of all turnover bands, from start-ups to

multinational corporates.Asset-based lending is particularly suited to

asset-rich companies

that have

a cash-flow need. It enables management teams to unlock capital tied up in the balance sheet by using their assets (such as receivables, property, plants, machinery or stock) as security against or in exchange for funding.

As a provider of this product we link credit availability to a client’s growth, which means that as the clients business grows, more working capital is available. There is no need for a company to make another loan application; we anticipate requests so that funding can be accessed quickly. As our facilities track in line with the expansion of a client’s business, they are becoming increasingly popular with dynamic and forward-thinking companies that value the power and certainty of an asset-based lending solution.

This increased awareness, along with the number of larger deals taking place, heralds a new era for the product in the UK corporate mainstream. North America remains the most sophisticated market, but as a member of the Asset Based Finance Association I am proud of the support the UK asset-based lending industry is providing to businesses as we enter a period of economic recovery.

Demand for credit remains subdued as businesses and consumers alike continue to pay down their debts. There is clear evidence of this among our own clients, as the more sophisticated larger corporates are taking less debt onto their balance sheets. As an industry we are open for business and ready to provide support for UK businesses to grow and prosper. ■

Asset-based lending has taken on renewed significance as a hamstrung economic market continues its recovery, writes John Bevan, vice-chairman of the Asset Based Finance Association (ABFA) and head of sales finance at Barclays Corporate. He explains how the inherent flexibility of this form of financing is a boon for firms in these testing times.

The key advantage of the asset-based lending is the higher lending levels it allows compared to an overdraft or more traditional loan product

FlexiblefinanceJohn BevanJohn Bevan joined Barclays in February 2007, taking up the role of head of sales finance at Barclays Corporate in February 2008. Bevan has worked in banking for 27 years, and in the invoice finance market for the past 16 years.

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Company insight > ABL & securitisation

89Future Banking | www.banking-gateway.com

S tandard back-up services include debt management, call centre and printing services, and medium-sized projects of up to €100 million. Large multinational back-up servicing

projects require sophisticated debt management systems to deal with different currencies and tremendous figures of bookings and payments. This short-notice capacity must be maintained throughout the standby period. Concent’s SAP software and licence contracts allow ten million bookings per hour, enabling the company to migrate the servicer data of such ABS projects within less than one hour. In order to be able to send off millions of letters and perform thousands of calls within the first 48 hours, the back-up servicer has to refer to cooperation partners.

Services such as floor checking, repossession and disposal of tens of thousands of car fleets in local markets are also required. Printing and call centre services are available in the home market for international projects, while the other services must be contracted with servicing companies in the foreign markets.

In order to meet the requirements of the SPVs, the back-up servicer has to build up a network of cooperation partners with skills in all asset classes served, which requires years of market analysis and negotiations. It is vital to maintain this network to keep it readily available and conduct regular audits. The network must be upheld through cooperation agreements, which in the case of such a contract, is legally guaranteed in the long run over the course of the standby period.

Legal requirementsThe requirements to the back-up servicer can result in time-consuming negotiations, particularly in the automotive sector, with regard to the special services to be rendered (e.g. floor checks, repossession, realisation). The number of investors to be considered in addition to the arranger and originator may further complicate negotiations. Comprehensive legal advice is required by the back-up servicer to protect its interests, define the scope of works and to limit excessive legal risks. Multinational projects call for legal counsel of an internationally focused law firm capable of negotiating with attorneys of other parties and local legal counsel. Sizeable legal costs are included in a project for negotiations up to one year.

In addition, it is crucial to take into account the legal framework in each country. In Germany, for instance, a bank licence is required for debt-financed assets. As a result, the back-up servicer has to contract a bank, unless the back-up servicer holds a banking licence itself. In the case of a domestic bank, the back-up servicer might have to apply passporting in each country to comply with any special requirements abroad. Therefore, the

back-up servicing agreement is complex and cost-intensive. Besides the contractual agreements between the SPV and the bank, a congruent contract between the bank and the back-up servicer is needed.

Also, national regulations regarding vehicle repossession and realisation, or the obligation to take over employees of the existing servicer must be taken into account. These differences lead to heterogeneous processes in each country and require an appropriate contractual arrangement in the back-up servicing agreement, as well as in the service-level agreements with the various service providers.

Company size The back-up servicer must have exceptionally qualified project staff and experienced business consultants in order to carry out contract negotiations. During the standby period, a team that performs ongoing training, data testing and monitoring of service providers can maintain the quality of several projects.

When activating the back-up servicer of a major portfolio or several back-up servicing portfolios simultaneously, team leaders and members need to perform all legally agreed upon duties immediately, such as internal tasks (debtor management, data migration), as well as managing the contracted and trained service providers (printing service, call centre, etc).

Since the availability of such kick-off teams is generally economically unfeasible to cover with standby charges, major projects require a company or corporate group with the necessary manpower to draw from already existing resources.

Frequently used ratings agencies often evaluate whether the back-up servicer as well as the process is configured appropriately prior to the signing of the final agreement. In addition, professionalism, experience and financial strength draw special attention. This also includes the integration into a previously mentioned overall organisational structure.

As of 25 August 2010, internationally-renowned ratings agency FitchRatings has assigned Concent Forderungsmanagement GmbH a primary servicer rating of ABPS3. This is the first such rating assigned to a European ABS servicer, and further proof of the company’s proficiency in servicing complex receivables portfolios in today’s volatile economic environment. ■

The secret to successful back-up servicingConcent Forderungsmanagement GmbH, a subsidiary of Universum Group, hasmore than ten back-up servicing contracts underway, with the largest having an ABS volume of more than €2 billion. Dr Karl-Heinz Pitz, managing director, outlines some of the challenges of multinational back-up servicing projects.

Further informationUniversum Group www.universum-group.de

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