David A. Ward joined SMBC Leasing and Finance, Inc. Group in 1991 and has spent the last two decades building the business into an international enterprise with an established presence in the U.S. and the UK, as well as expansion plans extending to Australia. Ward says he’s mindful of global challenges as he works to bring a broader array of bank products to his customers.
During his 22-year career with the SMBC Leasing and Finance, Inc. (SMBC LF), President and COO David A. Ward has had the opportunity to manage the company’s leasing expansion on an international scope, which often includes unpredictable events that create uncertainty in different regions of the global market.
Since initially joining as SMBC LF’s controller, Ward progressed to CFO in 1992 and then president and COO of the group in 2002. During this time, SMBC’s presence in the Americas has also grown substantially from its initial inception.
“We were originally formed in 1991 to provide a leasing product for the bank’s Japanese counterparts that had a manufacturing operation here in the U.S.,” Ward said. “Those would include the likes of Mazda, Bridgestone/Firestone. That was why we were originally formed, to offer that leasing product.”
Having the strength of SMBC to back up the initial leasing business enabled Ward and his team to expand its business. “The bank has been able to develop very good relationships with a number of leasing companies here in the U.S., and then those relationships have obviously helped us in our leasing business. But we’ve also been very successful in initiating new relationships for the bank by using our leasing product to develop those initial relationships and customers.”
Today, SMBC LF’s, total capitalization in excess of $700 million, acts as underwriter/principal, equity and debt investor, advisor and syndication agent, with a business focus on structured financings of aircraft, rail, renewable energy and real estate.
Ward, who is based in the New York office, leads a 23-person team with leasing industry veteran Gary Lipman, who acts as managing director. Ward also works closely with the UK office’s managing director Lawrence Butcher and his 11-person London team.
“Lawrence came to the UK and has grown that group to a book of business of about $1 billion,” Ward said. “He is also leading our push into Australia. So he and his group will be responsible for the day-to-day oversight of our operations in Australia as we’re able to build that. So it’s really Lawrence and Gary who lead the business in the different areas.”
Overseeing leasing business within the unpredictability of the global economy proves to be an unending challenge in Ward’s work, even since the beginning of his tenure at SMBC.
“From a professional standpoint, my work has given me the opportunity to work with a very diverse and very talented group of people all over the world, including Japan, the UK, Europe, Australia and throughout North and South America,” Ward said. “It’s been an interesting ride because shortly after I first started in 1991, the Japan economy was still suffering and continued to suffer for quite a while. As the Japanese banks started to strengthen, we got into a period of economic crisis in the U.S. while the Japanese banks remained some of the strongest in the world. So we’ve been able to weather all of that by relying on one or the other in terms of business and bank support.”
“The bank has had great success in Japan as well as Europe and the Americas. I think the longer-term goal for us and the bank as a whole will be to really tie those organizations together and work more cooperatively so we can deliver a full range of products across all those operations to make it truly a more global institution.”
SMBC LF’s geographic focus in the last year has been the West, UK, Continental Europe and, recently, in Australia.
“We started prospecting in Australia with the support of our Sydney branch,” Ward said. “We don’t operate in Asia on any large degree, as that region is handled by one of our affiliated companies based in Japan.”
“We are primarily focused on prospects and customers that are investment grade or equivalent. However, the bank has started to move down market a bit and, as a result, some of our customers are less than investment grade. Because we’re more of an asset-based financing operation, we’re able to rely on the strength of the credit relationship with the customer to offset risk. Still, the vast majority of our portfolio customers tend to be investment grade,” Ward said.
In December 2013, SMBC announced the acquisition of Flagship Rail, a portfolio company of Perella Weinberg Partners Asset Based Value Strategy, a unit of asset management firm Perella Weinberg Partners. The transaction was valued at $1.1 billion.
“The leasing company here in New York has done rail car and locomotive leasing for a very long time, but principally on more of a finance lease basis as opposed to a true operating lease. So we were not all that heavily invested into the residual values and remarketing efforts associated with rail,” Ward said. “But we’ve always liked that space.”
Flagship Rail was founded in 2006 as AIG Rail Services before being acquired by Perella Weinberg Partners Asset Based Value Strategy in 2011. Ward and Lipman worked on that transaction with the hopes of acquiring the rail company in 2011, but the untimely Tōhoku earthquake and tsunami in Japan halted their efforts.
“Obviously the senior management of the bank was more focused on issues surrounding the tsunami and the impact of that on the bank, so we really couldn’t get there then. We were really very pleased when it came on the market again in 2013. Additionally, we had opportunities to look at other joint ventures or acquisitions in the intermediate time,” Ward said.
Ward considers the rail business, and rail cars in particular, a solid long-term investment. “It’s a very controlled, regulated market, but the value of the railcars moves with inflation; it’s a cyclical business, but the cycles are somewhat predictable, and I think most of the people who follow the rail market view it as a leading indicator of the overall economy in the U.S.”
“I think it’s a very stable asset class, and one that we’re very comfortable with internally. We acquired an excellent management team, one of the best in the industry, and so I’m highly confident they’ll turn out to be a wonderful acquisition for the bank.”
With the close of the Flagship Rail deal, Ward and his team have an ongoing effort to build business in that sector.
“We continue to look for other opportunities to expand that business, in particular by doing portfolio acquisitions or other corporate acquisitions. We’re also looking at the UK and Europe, specifically with respect to rail,” Ward said. “We continue to focus on other asset-types, and those may be hardline assets, where there’s a strong leasing market and somewhat stable market.”
Having spent over two decades in the leasing market, Ward recognizes what has helped shape today’s market landscape, and the benefits SMBC has to remain competitive.
Ward attributed what he described as a substantial change to the leasing market to two things: the bankruptcy of Enron and the growth of regional banks’ activity in the market.
“The vehicles Enron created were focused around leasing transactions, and so the bankruptcy had a negative impact on the leasing industry overall. Another significant factor today is that the regional banks are so flushed with deposits and they’re having a difficult time converting those funds into earning assets, so they’ve disrupted the leasing market by offering below-market rates,” Ward said.
“The very low interest rate environment that we’re in today negatively impacts the benefits of tax leasing, and it has over the last five or six years, so that market is much smaller today than it would have been because there’s not as much benefit to doing leasing transactions that are tax-motivated,” Ward added. “Obviously rates aren’t going to recover until the economy as a whole strengthens.”
Economic recovery following the 2007-2008 financial crisis has been an ongoing struggle both in the U.S. and the leasing industry as a whole, Ward said, and one that continues to be of concern for business moving forward.
“I think the economy is still soft. We haven’t seen a lot of new investment. We’ve seen pockets of it, but I think that with rates still so low and with so much uncertainty about whether this recovery is going to really gain traction, we don’t see much strength in the employment areas yet. But I think that we’re going to continue to see low interest relates until the end of the year with no real improvement in investment, so I don’t expect to see much of a change between now and the end of the year,” Ward said.
Another obstacle Ward faces is proving differentiation from lenders that offer similar products, which pushes SMBC to utilize its full capabilities as a global entity.
“We’re doing transactions for companies that have operations in the UK and vice versa; we certainly do a lot of transactions for our Japanese customers here in the U.S., and I think it’s the ability to offer a product that’s essentially worldwide to the bank’s customers that do business in a different jurisdiction.”
Though Ward claims to focus less on long-term planning, he plans to continue to grow SMBC LF as the Bank expands its U.S. operations into more of a full-service bank and supply a full range of products to its customers.
“We’ve made great strides over the past couple of years to expand our banking powers in the U.S. and to offer a better variety of leasing structures, as well as a full range of banking products. I think we’re a product group of the bank; we’re looking to expand that product offering and give the bank and the bank’s relationship managers the full scope of customer products that the customers are looking for.”