10 years on Fleet and the financial crisis

10 years on Fleet and the financial crisis

11th Aug 2017

10 years on the financial crisis.

Who can remember what they were doing on the 9th August in 2007? So why is this significant? This is the official widely acknowledged date the crisis started, when BNP froze three of its investment funds. Why? because they were not too sure about the value of their triple AAA mortgages anymore.

Guess what, nobody else was as well and everything started to freeze, not temperature, but liquidity. If you no longer know the value of anything what a frightening place to be. Banks stopped lending to each other and as obligations had to meet then the panic started.

On the high street, many banks were affected and still today some of the banks are carrying significant government bailouts.

What have we learned and what has changed? we may ask in the world of fleet.

Initially funders had a double whammy – credit risk and collateral risk.

Firstly, credit risk - Who was going to be safe in the recession that was bound to follow – where am I exposed and by how much was the question. Credit lines were cut overnight and existing orders were often put on hold as banks tried to maintain what liquidity they had.

Secondly collateral risk – fleet is a great market to be in, it is often said from a funders perspective, wheeled assets, easy to collect with a clear transparent used sale market, so relatively low loan to value (apart from the early years). A robust used market, a low loss given default if the worst happened. Next panic set in, who is going to buy these vehicles now and what is the true value of these assets anymore. As a lessor if I need to mark to market what is the market price and what is the loss I am going to have to take?

Put simply the nightmare happened, credit and collateral risk all at the same time.

Now it’s all different, banks are better capitalised to withstand these shocks, regulation in the form of the PRA and FCA ensure risks and conduct are effectively managed with new challenger banks ensuring competition is much more effective.

For those who live fleet, 10 years ago may seem a long time and hopefully never to be seen again.

Sometimes it’s good to reflect as Edmund Burke the famous philosopher once said

“Those who don’t know history are destined to repeat it” let’s hope not.  

Here at LetsTalkFleet we know banking and we know fleet, so, if it’s time to look at how you are funding your fleet we may be able to help.

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