Time May Be Ripe for Return to Leasing; Openings Developing for Banks, but Risks Have to Be Managed

By Kapiloff, Howard | American Banker, April 28, 1994 | Go to article overview

Time May Be Ripe for Return to Leasing; Openings Developing for Banks, but Risks Have to Be Managed


Kapiloff, Howard, American Banker


Openings Developing for Banks, But Risks Have to Be Managed

STAMFORD, Conn. -- Preoccupied with bad real estate, leveraged buyout, and Third World loans, banks in the late 1980s pulled out of the equipment leasing market. But now that they're healthy enough to get back into the business, the big question for bank CEOs will be: Is time on our side?

The key to success for lessors -- whether banks or other companies -- is to avoid getting stuck with equipment whose value depreciates when the lease ends. As technology advances at a rapid pace in the 1990s, time will not be on the side of banks that don't carefully manage this risk.

Perhaps the best mentors are those who lease computers, such as IBM Credit Corp. and Bank of Boston. After all, probably no product today is more susceptible to obsolescence, let alone depreciation, than the mainframe or personal computer.

Captives' Clear Advantage

Why should banks get involved in equipment leasing at all? After all, the captives clearly have an advantage over banks. Not only do they generally possess a greater expertise in their particular field, but many times they offer a variety of leasing products, like operating leases, that banks rarely can match.

Also, captives offer maintenance and management services. They can provide invoicing and track the mileage of trucks and othe vehicles they lease.

Perhaps the most significant advantage is that captives aren't stifled by the same regulations as banks. There are, for example, limits on the amount of risk that banks can take.

Furthermore, statistics show that banks are losing money when they lease equipment. In 1992, banks experienced a 5.4% decline in income received from leasing, according to the Department of Commerce.

Receivables Decline

Also, banks' lease financing receivables dropped 5.1% in 1992. (Figures for last year are not yet available.)

Nevertheless, the reasons not to enter the equipment leasing business are outmatched by the positives. For starters, 80% of corporate America leases its capital equipment, according to the Equipment Leasing Association. Obviously, the demand for service is out there.

Because they want to avoid obsolescence, companies would much rather lease equipment than own it. This explains why, according to the Commerce Department, the volume of leasing transactions grew from $85 billion in 1986 to almost $130 billion last year.

Furthermore, captive finance companies are downscaling and sometimes eliminating areas where they have run into competition with banks.

Back on Track

Consider Chrysler Finance Corp., which stopped financing leveraged buyout loans and credit for non-auto industries, when its core car business began to run into trouble.

Chrysler had been financing the purchase of equipment for nuclear power plants. Now, the company focuses exclusively on automobile leasing.

"That's what we do best," said Paul Knauss, director of vehicle asset management at Chrysler Finance. "A lot of times there's a lot of things in vogue like 'we're going to diversify.' A lot of companies diversified and figured out that that wasn't necessarily the thing to do."

Mutual Fund Spinoff

Chrysler isn't the only captive in retrenchment mode. So is IBM Credit Corp., which securitized and marketed $1.4 billion of commercial leases last year.

In what has become a controversial move, the company intends to sell to Fleet Financial Group of Providence, R.I., the mutual funds it offers to employees IBM's 70,000 shareholders are scheduled to vote on the $14 million sale to Fleet before a special meeting on June 15.

But John Bogle, chairman of no-load mutual fund giant Vanguard Group, maintains that his company can manage the funds less expensively for shareholders than Fleet can. IBM Credit was so anxious to get out of the mutual fund business, it may now face a proxy battle. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Time May Be Ripe for Return to Leasing; Openings Developing for Banks, but Risks Have to Be Managed
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.