On 30 September John Rees is due to complete his 26-year career with Societe Generale Equipment Finance (SGEF). It marks the culmination of what Rees himself describes as a “fantastic” experience and which many in the industry will consider to be a textbook career path for the leasing industry. On the eve of his “retirement” Asset Finance International had the pleasure of interviewing him.
“I’m an Essex boy!” he said, “I come from Southend-on-Sea. And what do they say? ‘You can take the boy out of Southend but you can’t take Southend out of the boy!’ My junior education was at Southend High School for Boys which was, and still is, a grammar school. I went to university in Bristol and had three very happy years there. I came out with what we used to call a ‘Sportsman’s Degree’, so I had my colours at Soccer and got a 2-2 in Geography.
Following university, he began working for some of the traditional equipment lessors including Svenska Finans, ING Lease and Hambros.
He explained: “After university I joined the National Westminster Bank on a graduate training programme but I was based in Chelmsford and I wanted to go and work in London. The bank was intractable so I went and joined Bank Leumi as a credit analyst.
“It was in the days of 100% allowances, and the only reason that Bank Leumi commenced leasing was to shelter its own tax liabilities. So the head of credit at the bank was responsible for running a no-risk leasing portfolio to shelter the bank’s tax liabilities and one day he said to me: ‘I need some help running this small leasing book’.”
He moved on to join Svenska Finans – the leasing subsidiary of Svenska Handelsbanken – where he got to know the leasing industry more intimately. “I had a great time there but they decided to close their leasing operations and I was made redundant. I then went to ING Lease and learnt to work within a very sales-driven, dynamic leasing team.”
“At the time ING Lease employed around 20 staff in the UK. As managing director Philip Derby’s model was; go and employ a group of young, dynamic sales guys and make them compete with each other. We worked very hard, we earnt our commission and he gave us all fast sports cars. I’m not sure if in today’s world, that management style would be quite as cool, but it was how I got into the industry. I did two really good years at ING, meeting some very good industry people with whom I’m still good friends.”
Learning vendor finance
In 1994 he moved to Hambros Bank as sales manager where he recalls having to make verbal presentations of credit applications to the chief executive – or even the chairman. “It was a great time at Hambros, Tony Mallin was there at the time and he was someone from whom I learnt a huge amount. It was also where I learnt vendor finance, because before that it had just been direct selling but at Hambros we had a very strong vendor strategy, and constantly built relationships with suppliers.”
At the time vendor finance was developing an international presence and Hambros needed to have a servicing ability in some European countries - and beyond. The company was struggling to transact cross-border deals due to the lack of an international presence. It was then that Societe Generale acquired Hambros Bank. “Nothing to do with the leasing business I’m sure,” he stressed, “but rather because they wanted to buy the private banking business, which was one of Hambros’ strong attributes.”
In 1998, therefore, Rees found himself employed by an international leasing group as managing director of its UK division. Later, when he moved to Paris, his deputy who was Giles Turner took over the role of UK country manager.
He remembers being told by his first chief executive at SGEF, Jean-Marc Mignerey: “You fit exactly into our business; and we want you to be part of our business.”
Rees looks upon Mignerey as “the godfather of SGEF”. He explained: “prior to his appointment the company was only represented in France where it had around €1 billion of assets under management. When he left, his legacy was an organisation which was present in 15-16 countries with some €12 billion of assets. Jean-Marc is a man that I have massive respect for. Yes, he had quite a distinct management style, very correct. I have huge respect for what he created.”
The Societe Generale acquisition proved to be something of a shot in the arm for SGEF’s UK leasing business. Rees said: “We had the vendors that came from Hambros and then we had access to all of the international clients.
Probably one of our biggest clients then was a very large US software company. We were active in the early days of IT financing, buying paper from the vendor when they were selling their software license on instalments. Actually, SGEF was doing the same thing with this vendor in France so it fitted very well. We were both quite innovative and entrepreneurial in financing technology assets and we saw software as important as hardware and mainframes.”
He added: “Back then the balance of value in an IT sale would have probably been about 70% hardware, 30% software - and now of course, it’s completely reversed. In some sales it’s 100% software. The cost of hardware has just gone down and down and down. At that time, I think we were probably a little bit ahead of the market in being comfortable to finance just the software part.”
Understanding residual values
SGEF worked at being high-profile in the local authority leasing market at the time. “It was,” he stressed, “a time when local authorities wanted to get it out of their capital budget and into their revenue budget. So, we worked with all of the intermediaries in that sector and that was where we learnt residual values as a product. That stood Giles Turner and I in really good stead in our careers - to really understand residual values. I think a lot of people know how you can value an asset in the future, but I think you need to add the customer behaviour to that as well – and indeed we rarely had any of our equipment returned at the end of the initial term lease period – instead they inevitably extended.”
By 2000 Rees had run the UK operation for SGEF for some three years. With his daughter leaving home to attend university his wife suddenly exclaimed: “You work for an international organisation and I’ve always wanted to live in France”. At the time we really needed to create an international desk in Paris because we were at risk of becoming five individual businesses rather than one aligned business. Following my request to Mignerey he came back with: “okay, if you’re up for it, then you can come to Paris and setup our first international desk.”
I went home and told my wife and she said: “John, it was a fun conversation over a glass of wine! I wasn’t really expecting it to happen!”
Rees worked in Paris for six years developing the international vendor team. SGEF had a subsidiary in Australia which wasn’t working very well and Mignerey suggested he go there and turn it around. “I agreed because it was an interesting posting for me – although my wife wasn’t that keen on the idea because it was so far away. We had a two-year posting there and from a business perspective, I probably learnt more in Australia than anywhere else because we did improve the business and we did improve the profitability by working with international vendors. But unfortunately, Australia is not strategic for a French bank and so for reasons outside of our control, SG decided to exit Australia and no matter how profitable our business was, you can’t go against the strategy of the bank/shareholder.
“I had to close the business there, and doing that despite it performing quite well at that stage. Making most of my 50 staff redundant was a difficult business experience but probably one that I learnt the most from.”
Early leasing times in China
From Australia he was requested to go to China and run the SGEF operation there. “It was quite early days for leasing in China. But I would say that China was the most exciting life experience for one to live two and a half years there. My wife and I had a great time to learn a new culture, to see a fascinating country at a very early stage in its business development.”
His predecessor had been there for about four years – at a time when there was no leasing code in the law. “Nevertheless, it was a great experience and since then, my wife and I have held a very positive view of China.”
When he returned to Paris from China, it was the first time Rees had not directly worked for SGEF. For two years he worked within the risk function of SG. “Everyone said to me ‘but John you have such a strong commercial background, you’re known as the sales guy, you’re known as always sponsoring the customers.’ But I have to say I totally enjoyed the two years in the risk department, and I would encourage anybody new going into the industry to spend some time in your risk departments because I think you learn so much and you gain credibility from working there. It’s not boring, dry work – well it wasn’t for me.
“My boss once asked me ‘what training courses do you think your team of analysts require?’ and I said, ‘send them on a sales training course’. When he asked what I was talking about, I explained to him that the area we needed improving was not being embarrassed to say ‘no’ on the credit files. We needed to ‘sell’ the decline.
“When the credit decision is a ‘yes’, all the business wants to hear is that one word. What we needed to do is to sell the ability to say ‘no’ to them, because they need to understand this so that they don’t keep bringing us files that are ‘no’s’. A credit team is typically happy to write a long email when it’s ‘yes’ but very uncomfortable to write back and say ‘no’. In fact, you need to do the opposite, you need to pick up the phone and explain why you’re saying ‘no’.”
“I got challenged a few times though, because I couldn’t resist reverting back to my commercial days and re-pricing deals upwards. So I quite often signed a few deals but increased the margins. Then I got told that margins weren’t my responsibility. I always argued that risk is more like risk+reward because what you might do for a 1% margin is very different to what you might do for a 5% margin.”
The value of margin
In fact maintaining margin has long been paramount for Rees. “Banks are not very good selling organisations,” he said, “the history of banks is in building trust, advising clients and things like that. At the end of the day, we’re quoted companies and we have commercial shareholders and you have to monetize all of these values. I fully believe in trust and some of our vendor relationships have lasted more than 20 years. But you have to be paid for the value that you’re bringing, and I love the expression ‘volume is vanity – but profit is sanity’.
He added: “The challenge is that the first number in any P&L is always volume, and we still do it, we have monthly sales calls and we ask the countries ‘what’s your volume, what’s your margin?’. We should be asking them, ‘what’s your margin, what’s your volume, the real question is: ‘what’s your income?’ I always fight against market share, and countries are saying ‘we have to maintain our market share’ and I say, ‘no, I’d rather have 1% less market share and 2% more points of RoE’.
Nevertheless, SGEF has undoubtedly performed well in all areas under Rees’ sales leadership. “We currently have a portfolio of €18 billion and we’re either the largest or second largest leasing company in Europe, and we’re in the top three of the world. How can we have an issue with market share if we’re in the top three leasing companies in the world?
One of John Rees’ biggest challenges has come near the end of his tenure at SGEF. “The last nine months have clearly been dominated by COVID-19, and for SGEF I think it’s made us closer to our customers. We over-communicated, we helped, we tried to provide facilities that had no rentals for the first six months. We’ve missed the physical contact of seminars but we’ve compensated with many video calls.
Asset ownership versus usage
“I think that where the COVID-19 crisis has helped us, is in that it has shortened our decision making time, whereas if we wanted to introduce a new policy for, say, financing photo-voltaic plants as part of our green strategy, normally creating such a policy would probably take 50 committees and loads of man-days but when you’re remote we build policies in a matter of weeks. We didn’t have a re-scheduling policy when COVID started - about a week into the crisis we had one formed. I bet now, as we go back to an office-based environment, all of those committees will come back. We’ve got to retain all of that urgency and agility in the returning working environment.”
Looking ahead Rees is a firm believer in the application of servitization, in the asset finance industry. He said: “I think that servitization is going take some time, we’re going to have to keep plugging away at it, and investing in it before we see any real progress/profit and it becomes a smooth process.
“If you asked me in 12 months’ time, what percentage of SGEF’s business would be done on classical ownership/residual-based models compared to usage payments, it would be 95% traditional and 5% usage. But, maybe in 2022 it will be 90/10, and the year after it will be 80/20.”
The love of soccer
May his future bring him back to the UK? He added: “I’m going to spend my life going between the two countries because I love them so much. I have a house in Southend right by the beach, I jog along the promenade on the seafront from home to the pier and back. So, we will still be in Southend. I have two beautiful grand-daughters who live in Bath, so I go there a lot. And, I have a small home in France in one of the wine areas. So, we’ll be spending our time split between Southend, Sancerre and Bath.”
At present Rees refuses to contemplate a career after SGEF – although jocularly he said: “When I was a lot younger, I played semi-professional football for many years. I played one league under the present conference league. I played against a few professional teams in things like the FA Cup. Actually, if I did have any sort of dream of what I could do in the future, it would be a soccer coach. There’s a joke that you could make there, because Southend United is a dreadful team, they got relegated last year, they’ve gone through two managers every season, so if in a couple of years’ time John Rees appears as the manager of Southend United, that’s a good dream to have!
After all, he laughed: “If I can manage the SGEF salesforce, which amounts to about 700 people spread around 20 countries in the world, it can’t be so difficult to manage 11 guys on a football field.”