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Aspects of Corporate Finance: Inter-firm Lending

 | 
Michel Lescure
, 
Michael Moss

Debt-free equipment: the leasing pioneers in France, 1957‑1972

Sabine Effosse

Texte intégral

  • 1  Catherine Quignon, « L’extension du domaine du leasing », Le Monde, 21 April 2013.
  • 2  Pascal Canfin, « N’achetez plus, louez ! », Alternatives Économiques, n277, 1 February 2009.

1The clearly successful practice of leasing goods to consumers is all the rage today with the creation of dedicated online sites. Students lease their household appliances for the year, while watch lovers lease luxury watches.1 The functional service economy is developing with the Internet, and leasing is overtaking purchases.2

2The leasing technique long remained low profile before being discovered by the general public in France in the 1980s with the spread of car leasing. Initially designed for business, its original purpose was to finance capital goods. This formula first appeared in Great Britain in the 19th century, particularly in the railways, before being taken up by the United States in the early 1950s and spreading to Europe and France a decade later.

  • 3  Jean-François Gervais, Les clés du leasing, Paris, Éditions de l’Organisation, 2004.
  • 4  This purchase option is a French particularity. There is no such option in Germany, for example, w (...)
  • 5  Banque de France Archives, 13672003/86, direction du Trésor, mission de Contrôle des affaires fina (...)

3How can this evolving, protean practice of leasing be defined? Leasing is an agreement, legally speaking a lease – or rental contract –, by which a renter or lessor grants a lessee business the right to use a designated good – a piece of equipment, machinery or an asset in the broad sense of the term – for a specified period in consideration of the payment of rent.3 At the end of the contract, there are three possibilities: the good is returned to the lessor, it is leased again at a lower cost or the business purchases the good for its residual value.4 The business is therefore the user of a good without being its owner: such is the core principle of leasing! The business can in effect “equip without investing” to use an expression from the 1960s.5 So a half a century before the “functional service economy” took root as a feature of our digitised societies today, the incredibly ground-breaking, modern leasing system gave businesses access to “debt-free equipment”.

4Leasing has another key characteristic: the business retains total control over the equipment operation, defining its own needs, looking for the equipment and negotiating sales terms with the supplier. Only once this step is complete does the business turn to a leasing company, which purchases the chosen equipment and rents it. Leasing then involves three parties: the business or lessee, the lessor who finances the investment and the supplier of the asset. This tripartite relationship constitutes one of the particularities of leasing compared with a bank loan, which involves two players: the bank and the borrower. Leasing can therefore be defined as “a financial technique at the centre of a commercial relationship”, in which the supplier has a definite role to play.

5In France, the first leasing company – Locafrance – was established in 1962 and its model was rapidly replicated. The boom in this sector led the Ministry of Finance to prepare a regulation. In a context of European construction, the idea was to encourage this financing technique conducive to productive investment and, in keeping with general policy, to govern what resembled credit. The Act of 2 July 1966, which supplemented the ordinance of September 1967, hence gave the French version of leasing (“crédit-bail”) a definition, which could now be applied to movables and real estate. This legislation, which formed the institutional bedrock of this business financing operation, marked a first step in the development of a now-regulated activity.

6This chapter concentrates on these pioneering days of leasing prior to 1972, when a turning point came with the arrival of new players and change in the profession. The first section describes the conditions surrounding the creation of the first French leasing companies (1957-1965). The second section discusses the impact of the leasing Act of July 1966 on these companies’ business activities. A third section analyses how this formula and its players evolved to meet businesses’ needs.

The beginnings of leasing in France (1957‑1965): merchant banks under the spell

  • 6  Hubert Bonin, 50 ans d’affacturage en France. Des pionniers et leaders aux groupes bancaires (1964 (...)
  • 7  Banque de France Archives, 13672003/86, direction générale de l’Escompte, note sur le Crédit bail, (...)

7Like factoring, which consists of outsourcing customer accounts receivable to a factor to avoid payment lead times, leasing – another niche sector – comes from the United States.6 To be more precise, these two techniques designed to ease business cash flow and capital needs, were already in use in England in the 19th century before being adopted in the United States and returning to Europe after the Second World War.7

8It was in the late 1950s, with the expansion of the European market on the horizon, that the American leasing establishments decided to set up operations in Europe. Approached with a view to a possible partnership, the French – non-nationalised – merchant banks chose instead to develop this model on their own. Yet just how promising was the leasing sector to these banks?

The American leasing experience and creation of the French companies

  • 8  On D. P. Boothe Jr (1911-1996) and the creation of these companies, see Léonard D. Adkins and Thom (...)

9In 1952, D. P. Boothe Jr., head of a small food company in California, sought to rent the packing machines needed for a huge contract he had just signed with the American army engaged in the Korean War, because he could buy them neither in cash nor on credit. However, finding no one to help him do so and realising that other manufacturers had the same problem, he formulated the idea to bring on board an intermediary company between the supplier and user to buy from one and rent to the other. He and three other partners hence founded the first “modern” American leasing company, the United States Leasing Corporation. In 1954, he left to set up his own company in San Francisco, the Boothe Leasing Corporation.8

  • 9  The American leasing companies sought to penetrate the financing of capital goods for export. La B (...)
  • 10  Deutsch Leasing, a subsidiary of the American Lease Plan International Corporation, was establishe (...)

10The success of leasing in the United States was due to a lack of medium-term credit, less advantageous tax depreciation in industry than in France, and the abundance of capital looking for a use. In late 1965, the total sum of contracts stood at 1.35 billion dollars or approximately 3% of total industrial and commercial investment. On the strength of this success, three of the leading companies – the US Leasing Corporation, the Boothe Leasing Corporation and American Industrial Leasing – decided to set up operations in Europe where the Common Market was offering business openings.9 In 1960-1961, these firms established subsidiaries in partnership with German, United Kingdom, Belgian and Italian establishments.10 The French merchant banks, also approached with these proposals, were more reluctant and preferred to set up their own leasing companies since, with the borders opening up, the French market was full of promise.

  • 11  Note that the Union Financière de Paris and the Rivaud group also founded La Société pour la Locat (...)

11La Banque de l’Indochine set the pace. After setting up a consultancy firm in 1957 to tailor leasing to the French market – La Société d’Etudes et de Participation Financière et Technique (Sepafitec) –, it established the first leasing company in France, Locafrance, in April 1962. This initiative was followed by four other financial groups. La Banque de Paris et des Pays-Bas, Suez, La Compagnie Bancaire and La Banque Lazard founded respectively La Compagnie Européenne d’Équipement (September 1962), Vendôme Equipement (February 1963), La Compagnie pour la Location d’Équipements Professionnels (CLEP) and La Compagnie pour la Location d’Équipements Professionnels et Commerciaux (CLEPC) (March 1963), and La Compagnie pour la Location de Matériel (July 1963).11

12In addition to these companies set up by banking groups came the leasing companies established by business groups. The French Iron and Steel Industry Association founded la Société de Location de Matériel pour la Sidérurgie (LOCASID) in December 1962 and the French General Confederation of Small and Medium-Sized Enterprises (CGPME) set up La Société de Location pour le Matériel Industriel (LOCA-PMI), which reserved its facilities for CGPME members. So, in just one year, nearly ten leasing companies had been set up.

  • 12  Patrice Baubeau, Arnaud Lavit d’Hautfort and Michel Lescure, Le Crédit national, histoire publique (...)

13Why was leasing so successful? What financing was there available to small and medium-sized industries? Internal financing aside, the Act of 18 January 1951, which regulated the pledging of plant and equipment to both hire purchase seller and lending bank, provided for funds by pledging the necessary plant to the bankers without parting with it.12 Similarly, the Act of February 1953 authorised the National Public Procurement Fund (CNME) to grant loans to craft businesses and industries in different sectors registered with the same chamber of commerce. A key role was also played by the medium-term rediscountable equipment loan from the Banque de France, introduced by a Bank General Council decision of 11 May 1944 to “facilitate the development of businesses’ production means”. Nevertheless, its inflationary effects regularly led the Bank to tighten the conditions for its distribution. Access to this medium-term credit was therefore highly dependent on economic conditions. Consequently, the September 1963 stabilisation plan put in place by Finance Minister Valéry Giscard d’Estaing, restricted the possibilities for this type of loan. Lastly, all these means of finance (medium-term loan and the acts of 1951 and 1953) called for an initial contribution of 25% and an application procedure regularly criticised as cumbersome by small and medium-sized businesses. The newly created leasing companies of 1962-1963 therefore represented an appealing possibility for businesses to find additional funds.

“Equip without investing”: the main characteristics of a leasing contract

14Leasing companies’ marketing pitches highlighted the main advantages of the formula: freedom of choice of supplier for the business and end-of-contract flexibility:

  • 13  Christian Marmain, « Le crédit bail marque des points », l’Usine Nouvelle, no 45, 9 November 1972.

“Choose the equipment you want from the supplier of your choice. We pay for it in cash and hand it over to you in return for the lease payments you make to us. At the end of the contract, you can opt either to return the equipment, lease it again or buy it for its residual value.”13

  • 14  The leasing company then sold the equipment on, either directly or through specialised companies.
  • 15  Rentals also have the particularity of being for short periods of time.

15The business did indeed choose its equipment and its supplier. Once the terms of sale had been settled with the supplier, the business contacted a leasing company to buy the equipment and draw up the contract. This contract contained three key elements: contract term, lease payment and end-of-contract options. The term was set based on that fixed for a medium-term equipment loan, which was between three and five years. This was divided into two periods. One was irrevocable and extended across two-thirds or three-quarters of the total term. It covered the purchase price of the good and was equal to or shorter than the period of tax depreciation. The second period was revocable annually. There were various ways of making lease payments. They could be monthly, quarterly or half-yearly; linear or diminishing; and payable in advance or in arrears. On expiry of the lease, the lessee business had, as been explained, three possibilities: return the equipment to the lessor (the leasing company), extend the lease on new terms (reduction in lease payments) or buy the equipment. This latter possibility, not found in all countries, including the United States and Germany where the leasing company retrieved the equipment,14 was stipulated when the contract was signed at a price equal to the set residual value (often a maximum 5% of the purchase price). It is also worth mentioning that the leased equipment was initially insured and maintained by the business making the lease payments, which differentiated leasing from car rentals where service and assistance were included.15

  • 16  This possibility of repossessing the good differentiated leasing from hire purchase for which, wit (...)

16Lastly, another essential element of the leasing contract was the company’s right of repossession if the customer defaulted. Immediately upon failure to make a lease payment, the leasing company was entitled to repossess its property and claim compensation.16

  • 17  Banque de France Archives, 1000199201/9, B. Chadefaux, « L’expérience française du leasing », Insp (...)

17Leasing was therefore a legal hybrid, since although the operation, in the same way as a bank loan, resulted in the allocation of a piece of equipment to a business, it was not a loan of money, but a good that was supplied.17

18This good was hence an essential element of the leasing contract. The calculation of its depreciation, in order to determine its residual value at the end of the contract, had to be close to its market value. Likewise, the rent was not just a price for a service rendered, but also represented a reimbursement of capital – enabling the leasing company to cover the purchase price of the good. Hence the irrevocable leasing period and, in the event of default, the possibility of repossessing the good.

19This essential element – leasing a good, rather than a loan of money – explains why leasing companies were covered by commercial law rather than banking regulations. They were subject to neither the obligation to register with the National Credit Council nor report the inventory of their commitments. Did this attribute guarantee their success?

Formula suited to the needs of SME‑SMIs and an immediate success

  • 18  Banque de France Archives, 13672003/86, direction du Trésor, mission de Contrôle des affaires fina (...)

20Business took off in a flash for the dozen companies established in 1962-1963. To take the example of Locafrance, the sum of contracts signed rose from 70 million French francs at the end of 1963 to 250 million French francs at the end of 1965.18

21At this point in time, the total stock of contracts across all the leasing companies stood at 750 million French francs. This may well have been a modicum compared with the 35 billion French francs in productive investments made by private firms – 4.9 billion French francs of which were financed by discountable medium-term loans – but it was a promising start.

22Leasing offered clear advantages. It was a way for companies to have new equipment without an upfront capital outlay or a loan. So, it was not a burden on cash flow. Such was the essence of the saying at the time, “Equip without investing.” It suited the needs of start-ups and businesses too small or cash-strapped to have access to medium-term credit. It therefore proved well suited to SMEs hard put to gain access to medium-term credit – with its required contribution of 25% of the price of the investment – or seeking to preserve their family-owned business structure. Yet it was also of assistance to large businesses that needed to make unplanned investments or investments that did not correspond to their core business.

  • 19  At the end of 1965, the breakdown of Locafrance’s equipment purchases was as follows: 30% machine (...)

23A study of the leasing companies’ business customers accordingly finds a majority of medium-sized enterprises – the average Locafrance contract was 120,000 French francs in 1963 – in economic sectors with a slow rate of equipment obsolescence: heavy industry, mechanical engineering, the chemical industry, agricultural machinery, etc. The leased equipment was used for such purposes as power generation, refrigeration systems, and business fixtures and fittings.19

24Leasing was also a flexible, fast-track option. Unlike the three steps required by the lengthy medium-term loan application procedure (bank, National Credit Council and Banque de France), leasing was granted within a maximum of eight days to a fortnight.

25Last but not least, from an accounting point of view, leasing was invisible on a balance sheet, since the goods were not assets as they remained the property of the lessor. Only the operating statement bore a trace of lease payments for the year.

26The downside to what might look like a “magic formula” was, as with factoring, the cost. Since leasing was in effect a rental, there was no interest rate and no one rate scale. Companies’ rates varied according to the length of the lease, the nature of the equipment, the quality of the customers, and sometimes discounts obtained from the supplier.

27This cost can be estimated from studies conducted by the Banque de France. In late 1965, it stood at approximately 10% to 12.5% per year, including tax, compared with the rediscountable medium-term loan at 5.75% and the equipment hire purchase rate of 16.40%.

  • 20  Pierre du Pont, report, op. cit.

28These rates were dictated by the cost of refinancing to the leasing companies, which had high capital requirements and limited access to the Banque de France. At the end of 1963, Locafrance’s resources comprised 34% equity, 34% medium-term credit, 18% internal financing and 14% trade credit payables.20 Nevertheless, leasing with its low risks was a particularly profitable niche. By the end of 1965, in three years of business, Locafrance had had just 12 cases of disputes in over 3,000 operations and a loss of value of less than 0.5%.

  • 21Idem.

29Leasing, this private merchant bank initiative spearheaded by American firms, maintained its momentum (from nine companies at the end of 1963 to 26 by the end of 1965) “even though the principle of leasing itself had hardly become part of French everyday life.”21 In a credit restraint environment (September 1963 stabilisation plan), it appeared as a complementary formula for investment needs. As niche financing, standing at 1% of productive investment by private firms (35 billion French francs) at the end of 1965, it was also seen as a way to speed the pace of technological progress as it facilitated the acquisition of new equipment without impinging on the business’s cash flow.

30Yet it was also an unregulated activity, which was a problem for the financial authorities. Leasing companies operated as commercial companies, even though they conducted operations equivalent in purpose to credit transactions.

31This is precisely the point on which the Ministry of Finance and the Banque de France wanted clarification before any policy was launched to encourage leasing companies. Although the reports produced on the subject, by the General Inspectorate of Finance in particular, recognised the utility of leasing in encouraging private investment, at the time insufficient in France, they also stressed the need to regulate the activity and accordingly specify its nature.

From leasing to the equipment and real estate “leasing loan”: the institutional turning point (1966‑1967)

  • 22  Banque de France Archives, 13672003/86, Commissariat général du Plan, note sur le développement de (...)

32Leasing flourished in its early years, growing as much in France in the first four years (1962-1965) as it had in ten years in the United States.22 As a response to French businesses’ previously unmet borrowing requirements, leasing companies lived up to the expectations of their founding merchant banks, which shared 75% of all leasing business among them. However, the boom had a limit: their resources. Given that the commercial form of these companies exempted them from being subject to banking regulations, they only had access to Banque de France rediscounting within strict limits. The legislator, amenable to the technique’s investment potential, therefore came up with the idea of facilitating their refinancing by making them subject to banking regulations and thereby resolving the ambiguous nature of their activity. What compromise was found exactly? What were the repercussions of the regulatory turning point of 1966-1967 on the leasing business and its players?

Leasing as a means of modernisation and industrial development

33The preparation of the 5th Modernisation and Infrastructure Plan came as a good moment to analyse this new practice of leasing in France. In an “industrial imperative” setting so dear to De Gaulle’s Republic, it formed an additional supply of funding to modernise French businesses in the face of European competition. The discussions that followed these studies turned up divergent stakeholder positions. The French Planning Office and the General Inspectorate of Finance were more in favour of leasing than the Treasury Directorate and the Banque de France. Among the arguments put forward by the former was the fact that leasing could solve the problem of capital for fast-growing businesses. Likewise, it could help modernise equipment provided that the contracts could provide for new equipment in the event of fairly rapid obsolescence, as was the case with the first computers or “supercomputers”. Lastly, in keeping with the model of American companies, it was considered that the French companies should also maintain the equipment, which would facilitate its use and represent a management saving for the business. The French Planning Office and the General Inspectorate of Finance therefore came down in favour of giving a “helping hand” and advocated an increase in leasing companies’ access to Banque de France rediscounting.

34However, the leasing companies’ commercial form bothered the French Treasury and the Banque of France considerably. The Banque de France considered easing access to its refinancing assistance only on the condition that the activity was governed and hence its legal nature specified since, as the Bank saw it, this was definitely a case of “a loan in lease’s clothing”. Compromise with the French Planning Office therefore called for the leasing companies to be turned into establishments subject to banking regulations. This choice was reflected in the very name of the operation now given the French title of “crédit-bail” (literally “leasing loan”) by the Act of 2 July 1966.

The end of free leasing: the advent of the equipment and real estate leasing loan

  • 23  They were therefore gradually bound by rules regarding the ratio of commitments to capital (eight (...)

35The Act of 2 July 1966 therefore clarified the nature of leasing. It established its financial nature by means of its very name. Leasing loan companies were subject to the provisions of the banking Act of 13 and 14 June 1941 on the regulation and organisation of the banking profession. They were hence bound to adopt bank or financial establishment status and comply with the decisions made by the National Credit Council.23

36The Act also gave a definition of the equipment “leasing loan” covered and specified that the operation could only take place for machinery or plant, ruling out private cars. At the same time, the purchase option was emphasised to differentiate the leasing loan from renting.

  • 24  The SICOMIs officially disappeared on 1 January 1996 after a five-year transition period (the 1991 (...)
  • 25  The Supplementary Budget Act of 24 December 1969 authorised the creation of companies accredited t (...)

37The Act of 2 July 1966 was then rounded out by the ordinance of 28 September 1967, which introduced a specific regime for real estate leasing loans with the creation of real estate development companies run on a lease-purchase basis (SICOMIs). The purpose of SICOMIs was to put in place leasing loans to finance the construction and rental of properties for professional use such as industrial premises (warehouses and factories), offices (head offices) and retail premises (supermarkets and hypermarkets) for a term of 20 to 25 years. With their advantageous tax system whereby, they were exempt from corporation tax and entitled to transfer-tax breaks, SICOMIs were immediately successful. Such was the case with one of the largest SICOMIs established by the Worms group in 1968: Unibail, which financed part of Pennaroya’s head office in Montparnasse Tower.24 SICOMIs were also lead players in the vast French telephone catching-up operation launched by the postal and telecommunications services under the 6th and 7th Plans. Here, the postal and telecommunications administration used dedicated SICOMIs underpinned by all the major commercial banks to finance fitting out the telephone exchanges.25 Financed by the leasing loan, the telephone exchanges were then rented to the postal and telecommunications services. Nonetheless, by the early 1970s, despite the SICOMIs’ clear success, the leasing loan was used less for the real estate sector than for productive equipment, which represented two-thirds of the stock of leasing loans.

  • 26  The proportion of real estate leasing loans in the total stock of Crédit national’s medium-term cr (...)
  • 27  In 1970, there were some 30 real estate leasing loan companies and around 20 SICOMIs.

38So, what conclusions can be drawn about this regulatory turning point of 1966-1967? The first point is above all the clarification of the nature of leasing and the establishment by law of its financial nature, now visible in its new name of leasing loan (crédit-bail). The counterpart of this clarification was the easier access the leasing loan companies now had to Banque de France rediscounting and consequently to more resources at a lower cost.26 The second consequence of the institutionalisation of leasing was its extension to the business real estate sector, thereby adding to this original financing method’s capacity for action where the premium was on use over ownership.27 Last, but by no means least, the transformation of the leasing companies into financial institutions brought an influx of new leasing loan players with the entry of the commercial banks, more particularly in highly tax-efficient real estate leasing loans. Société Générale set up Sogébail in 1968, Crédit Lyonnais established Slibail in 1969 and the Banque Nationale de Paris founded Natiobail – National Bank for the Development of Leasing Loans – the same year. The arrival of these new players, along with the banking decompartmentalisation enacted by the Debré Acts in December 1966, ushered in a new era in the development of leasing in France.

The leasing loan: an evolving technique working for business (1968‑1972)

39The institutional turning point established the utility of the leasing loan in meeting business investment needs, whether for equipment or real estate. The leasing loan hence evolved, along the lines of the American model, from its original form as a simple rental agreement into a formula that offered businesses an increasing number of services (maintenance, change of equipment, etc.). This means of financing also became more transparent in businesses’ accounts. The decree of 4 July 1972 established the requirement for accounts to disclose the commitments henceforth to be reported as off-balance sheet items. Lastly, in addition to this economic and accounting adjustment, leasing loan companies set their sights on expansion from a purely French to a more European environment.

New services, new sectors and new accounting standards

40Although leasing contracts originally left it up to the business to settle purchase terms with the supplier and maintain the equipment delivered, a game change occurred as this investment method spread. Setting their sights on capturing market share, the leasing loan companies were no longer content to merely rent the equipment. They started turning into service companies, offering business customers their services negotiating directly with manufacturers to obtain discounts, and concluding insurance contracts and maintenance contracts for the equipment.

  • 28  In 1971, the stock of equipment leasing loans stood at 3.6 billion French francs, broken down as f (...)
  • 29  Under the 6th Plan, the installed base of computers in France rose from 5,900 units in 1970 to 16, (...)
  • 30  Rank Xerox, the American copier manufacturer, started offering its customers a pay-per-use formula (...)

41Another new practice, based on the American model, was also to offer to replace equipment that became obsolete during the contract with more advanced equipment. This option, decisive for the French Planning Office, ensured a constant upgrading of productive equipment, especially rapidly obsolete equipment. Whereas leasing had initially financed mainly machines with a slow rate of obsolescence, this all changed with the boom in new sectors such as information technology – the Plan Calcul (Computing Plan) was launched in France in 1967.28 The equipment leasing loan, with its contract providing for equipment upgrades in the event of innovations, was particularly well suited for this purpose.29 Companies therefore preferred to lease supercomputers, the first computers, but also photocopiers on leasing loan contracts. Note, however, that competition with manufacturers was fierce as the manufacturers had formed their own leasing company.30 In addition to adjusting to new sectors, the leasing loan also evolved in the way it worked.

  • 31  Banque de France, direction générale de l’Escompte, « Le crédit bail mobilier », June 1971.
  • 32  Banque de France Archives, 1370198301/07, « Crédit bail sur le bétail », Les Informations, 9 Octob (...)

42The first lease-back formulas emerged in the early 1970s. This formula gave businesses the option of immediate cash in return for temporarily surrendering their production goods. For example, a leasing company purchases from a business investments that the business has already made and releases them straight back to the business on a leasing loan contract.31 One example that could be given in the agricultural sector is where a cattle farmer in the south-west sells the ownership of his four hundred cows to a banking group, which leases them straight back to him enabling him to replenish his cash flow without losing his “means of production”.32

  • 33  Decree 72-665 of 4 July 1972.

43The financial authorities considered that the expansion of the leasing loan market called for greater transparency in lessee businesses’ accounts. So, in July 1972, the Ministry of Justice asked for leasing loan operations to be recorded as off-balance sheet items to be able to assess the debt exposure of businesses with leasing loans which did not appear on the balance sheet. Similarly, commitments had to be declared to the commercial court for equipment leasing loans and to the mortgage registry for real estate leasing loans.33

44Evolving, and now more visible, the French leasing loan remained a market concentrated in the hands of a few players seeking to break into European markets.

Buoyant, concentrated market open to European cooperation

  • 34  Banque de France Archives, 1370198301/6, « Locafrance: 10 ans de crédit bail », Les Échos, 8 Novem (...)

45Although the number of equipment leasing loan companies continued to grow – 31 companies by the end of 1969 and 36 companies by the end of 1972 – the market remained highly concentrated. Locafrance still held its market leader position ten years after its establishment with one-quarter of all leasing loan investments. Its customers – numbering 50,000 at the end of 1971 – were 90% SME-SMIs and 10% large French businesses.34 The leasing loan pioneer, with its specialised subsidiaries organised by type of equipment leased, was also keen to assist its customers on foreign markets. So, in 1972, it set up Synerlease, an economic interest grouping, to provide consultancy services to French industrial companies with operations abroad.

  • 35  Banque de France Archives, 1370198301/6, Agence économique et financière, Louis Legendre « Locatio (...)
  • 36  Note that there was criticism of the large commercial banks’ incursion into leasing loans via thei (...)
  • 37Idem.
  • 38  Banque de France Archives, 1740199007/19, « Le crédit bail : le point de vue de l’entreprise », 19 (...)

46In second place was a new company born of the merger of CLEP and La Compagnie Européenne d’Équipement: Locabail. Established in 1967 from the merger of La Compagnie Bancaire and La Banque de Paris et des Pays-Bas, Locabail and then Locabail Immobilier in 1968 quickly made their mark as key players on the equipment and real estate leasing market, and joined Leaseclub, a group of ten European leasing companies set up to provide consultancy services to businesses beyond their national markets.35 Vendôme Équipement, founded by Suez, also remained among the most active leasing companies. Added to this group of pioneers, following the liberalisation of the banking market and institutionalisation of the leasing loan, came the specialised commercial bank subsidiaries of Slibail (Crédit Lyonnais) and, to a lesser extent, Sogébail (Société Générale), Natiobail and Natioéquipement (BNP), which all soon caught up with the leaders.36 The commercial banks, like the merchant banks before them, had certainly realised what they stood to gain from this fast-growing profitable niche sector. The stock of leasing loans (equipment and real estate) had grown from 1.25 billion French francs in 1968 to 3.2 billion in 1970 and then rose to 8.12 billion in 1972 and 10.7 billion in 1974, its highest point before falling back following the oil shock.37 This strong growth showed the utility of a formula that could “invent capital” when the market could not cover the needs.38

Conclusion

47To conclude on this pioneering decade of leasing in France, three major characteristics stand out. The first is the rapid acceptance of this financial rental or leasing loan formula, depending on the angle taken. The lack of capital among businesses made leasing a prime solution for their investment needs. The flexibility and speed of the formula, otherwise imperceptible on balance sheets prior to 1972, offset for SME-SMIs what remained a higher cost than the classic equipment loan at the time in the shape of medium-term credit. By the end of 1971, after a decade in existence, the equipment leasing loan represented 3.6 billion French francs in equipment purchases or 1.5% of productive investment in the private sector.

48This significant contribution was based on the merchant banks’ initiative – Banque de l’Indochine, Banque de Paris et des Pays-Bas and Suez – which recognised the huge potential, as with private consumer credit, of financing a highly profitable niche market. Buffeted by the commercial banks entering the market on their liberalisation – especially Slibail, Crédit Lyonnais’s specialised subsidiary – these pioneering and early players constantly refined the financing formula, its associated services and the sectors concerned. These highly technical services were delivered through specialised subsidiaries able to implement these developments. Intended mainly to finance equipment with a slow rate of obsolescence (machine tools), the leasing loan was also one of the first financing tools used for innovative sectors (information technology) with a fast rate of obsolescence giving businesses the modernisation and competitive gains to be achieved by the possibility of upgrading equipment.

  • 39  In 2014, BNP Leasing Solutions, created from the merger of UFB-Locabail - BNP Lease (merger of BNP (...)

49This evolving, protean technique that put the notion of use first – the last characteristic – proved particularly well suited to SMEs, whose “role is not to own, but to produce and sell”. A good’s worth was purely in its use and the notion of service came first over ownership. In one decade, the English pay-as-you-earn (PAYE) principle won over business and laid the foundations for a French financial sector that was to grow and grow.39

Notes

1  Catherine Quignon, « L’extension du domaine du leasing », Le Monde, 21 April 2013.

2  Pascal Canfin, « N’achetez plus, louez ! », Alternatives Économiques, n277, 1 February 2009.

3  Jean-François Gervais, Les clés du leasing, Paris, Éditions de l’Organisation, 2004.

4  This purchase option is a French particularity. There is no such option in Germany, for example, where the lessor undertakes to retrieve the good at the end of the contract. See Mario Giovanoli, Le crédit bail en Europe : développement et nature juridique, Paris, Librairies techniques, 1980.

5  Banque de France Archives, 13672003/86, direction du Trésor, mission de Contrôle des affaires financières, Pierre du Pont, « Rapport sur le leasing en France », January 1964.

6  Hubert Bonin, 50 ans d’affacturage en France. Des pionniers et leaders aux groupes bancaires (1964-2016), Geneva, Droz, 2016; Patrick de Villepin, La success story du factoring, Paris, Association pour la promotion et l’histoire du factoring, 2015; Sabine Effosse, « Les débuts de l’affacturage en France, 1961-1973 : un secteur marginal en quête de reconnaissance », Entreprises et Histoire, no 77, December 2014, pp. 114-123.

7  Banque de France Archives, 13672003/86, direction générale de l’Escompte, note sur le Crédit bail, 11 May 1970.

8  On D. P. Boothe Jr (1911-1996) and the creation of these companies, see Léonard D. Adkins and Thomas B. Bardos, “Leasing of Industrial Equipment”, The Business Lawyer, vol. 15, no 3, April 1960, pp. 586-594 and Banque de France Archives, 13572007/54; L. Pfeiffer, « Le prêt-bail de biens d’équipement, facteur d’évolution économique ? », Économie et Humanisme, 167, May-June 1966.

9  The American leasing companies sought to penetrate the financing of capital goods for export. La Banque de Paris et des Pays-Bas had entered into talks with the Lease Plan International Corporation, see Banque de France Archives, 13672003/87, memos from the financial attaché to New York on 9 May 1962.

10  Deutsch Leasing, a subsidiary of the American Lease Plan International Corporation, was established in Germany in October 1962, see Banque de France Archives, 1357200701/54, Memorandum on financing the rental of production goods in Germany, February 1963.

11  Note that the Union Financière de Paris and the Rivaud group also founded La Société pour la Location de Matériel Industriel et Commercial – LOMICO – in May 1962 and that la Banque de l’Union Parisienne decided to join forces with an American holding company to establish Leaseco France in 1964 to finance electric accounting machines and then computers.

12  Patrice Baubeau, Arnaud Lavit d’Hautfort and Michel Lescure, Le Crédit national, histoire publique d’une société privée, Paris, Jean-Claude Lattès, 1994.

13  Christian Marmain, « Le crédit bail marque des points », l’Usine Nouvelle, no 45, 9 November 1972.

14  The leasing company then sold the equipment on, either directly or through specialised companies.

15  Rentals also have the particularity of being for short periods of time.

16  This possibility of repossessing the good differentiated leasing from hire purchase for which, with the exception of a new car pledgeable under the 1934 Malingre Act, repossession was impossible by the body financing the equipment sold on credit, see S. Effosse, Le crédit à la consommation en France de 1947 à 1967, Paris, IGPDE/Comité pour l’histoire économique et financière de la France, 2014, pp. 28-29.

17  Banque de France Archives, 1000199201/9, B. Chadefaux, « L’expérience française du leasing », Inspection Thesis, May 1966, pp. 29-33. Prior to the Act of 2 July 1966, leasing was covered by Article 1709 of the Civil Code. It was based on a traditional contract of lease of things, “a contract by which one party binds himself to provide the enjoyment of a thing to the other for a certain time, in return for a certain price that this other party obliges himself to pay the former.”

18  Banque de France Archives, 13672003/86, direction du Trésor, mission de Contrôle des affaires financières, leasing report, op. cit., January 1964.

19  At the end of 1965, the breakdown of Locafrance’s equipment purchases was as follows: 30% machine tools, 20% paper-cardboard-printing, 16.5% civil engineering and iron & steel industry, 9% textiles and leather, 5.5% chemical industry, 5% agricultural and food machinery, 3% office equipment and 11% other equipment, see B. Chadefaux, Inspection Thesis, op. cit., p. 51.

20  Pierre du Pont, report, op. cit.

21Idem.

22  Banque de France Archives, 13672003/86, Commissariat général du Plan, note sur le développement des sociétés de Crédit-bail Immobilier, 5 May 1970, p. 4.

23  They were therefore gradually bound by rules regarding the ratio of commitments to capital (eight times the sum of capital according to the National Credit Council decision of 25 June 1970) and the declaration of transactions to the central credit register (NCC decision of 28 June 1967), and had to inform the National Credit Council of their scales even though the body provided for no limitation (NCC decision of 26 February 1971).

24  The SICOMIs officially disappeared on 1 January 1996 after a five-year transition period (the 1991 Budget Act had rescinded the advantageous tax system). From 1967 to 1995, they raised nearly 350 billion French francs for business real estate, Cécile Desjardins, « Que sont les Sicomi devenues ? », Les Échos, 24 October 2002.

25  The Supplementary Budget Act of 24 December 1969 authorised the creation of companies accredited to finance telecommunications. Société Générale and la Banque de Paris et des Pays-Bas set up Finextel (1970), La Banque nationale de Paris et Suez established Codetel (1971), La Caisse nationale de Crédit Agricole established Agritel (1972) and Crédit Lyonnais and Banque Vernes set up Creditel (1972), see Banque de France, Archives 1740199007/20, report from D. Trimoulla on the telecommunications financing companies, February 1978.

26  The proportion of real estate leasing loans in the total stock of Crédit national’s medium-term credit rediscountable at the Banque de France rose from 5.2% at the end of 1966 to 17% at the end of 1970. That same year, the share of medium-term credit in the leasing companies’ resources stood at 39.5%, see Banque de France Archives, 13672003/87, direction générale du Crédit, note sur le financement des opérations de Crédit bail Mobilier, 26 September 1973.

27  In 1970, there were some 30 real estate leasing loan companies and around 20 SICOMIs.

28  In 1971, the stock of equipment leasing loans stood at 3.6 billion French francs, broken down as follows: 18% machinery for civil engineering, iron and steel, and mines; 18% electrical equipment, 14% for vehicles over two tonnes, 13.5% for industrial machines and spare parts; 11% for other precision machines; 8% for machine tools; 8% for computers and peripheral devices; 2.5% for office equipment; and 7% miscellaneous, in Économie et Statistiques, « Le crédit bail en 1971 », October 1972.

29  Under the 6th Plan, the installed base of computers in France rose from 5,900 units in 1970 to 16,350 in 1975.

30  Rank Xerox, the American copier manufacturer, started offering its customers a pay-per-use formula in 1951. Also of note are Burroughs Machine, International Business Machines (IBM) and National Cash Register Company.

31  Banque de France, direction générale de l’Escompte, « Le crédit bail mobilier », June 1971.

32  Banque de France Archives, 1370198301/07, « Crédit bail sur le bétail », Les Informations, 9 October 1972.

33  Decree 72-665 of 4 July 1972.

34  Banque de France Archives, 1370198301/6, « Locafrance: 10 ans de crédit bail », Les Échos, 8 November 1972.

35  Banque de France Archives, 1370198301/6, Agence économique et financière, Louis Legendre « Location et leasing ».

36  Note that there was criticism of the large commercial banks’ incursion into leasing loans via their specialised line subsidiaries, since the bankers were accused of venturing into the “off-limits” area of the partnership, see Banque de France Archives 1740199007/19, « L’apport du crédit-bail aux techniques financières : l’exemple français », Maurice Lauré (then Chairman of Société Générale), Banque Journal, July-August 1977.

37Idem.

38  Banque de France Archives, 1740199007/19, « Le crédit bail : le point de vue de l’entreprise », 1977.

39  In 2014, BNP Leasing Solutions, created from the merger of UFB-Locabail - BNP Lease (merger of BNP-Paribas in 2000) and then the merger with Fortis (taken over by BNP Paribas in 2009) became the European leasing leader (see the Leaseurope ranking of leasing companies).

Auteur

Sabine Effosse is Professor of Contemporary History at Paris Nanterre University. Her current research is focused on credit policy, consumption and fe­minine finance in Europe 20th. She has recently published “Consumer Credit as a Marketing Tool: The French Experience in European and Transatlantic Comparison 1950s-1960s”, in Jan Logemann, Ingo Köhler, Gary Cross, Consumer Engineering, 1930-1970. Marketing from Planning Euphoria to the Limits of Growth, Washington DC, Palgrave McMillan, Chapter 8, 2019 ; « El cheque en Francia: el lento ascenso de un medio de pago de masas (1918-1975) » in Joan Carles Maixe-Altes, Gustavo Del Angel, Bernardo Batiz-Lazo, “Retail Payments in Historical Perspective”, Revista de la Historia de la Economia y de la Empresa, XI, 2017, pp. 77-94 ; « L’économie mondiale depuis 1945 », La Documentation photographique, 2016 and Le Crédit à la consommation en France. De la stigmatisation à la réglementation, Paris, IGPDE/Comité pour l’histoire économique et financière de la France, 2014.

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