Paul Menzel, CEO of Financial Pacific Leasing, is no stranger to tough times. But with strict adherence to pricing for risk and solid funding relationships, Menzel sees Financial Pacific poised to take advantage of promising growth opportunities both today and tomorrow.
Paul Menzel arrived at Financial Pacific Leasing as CEO in the fall of 2008, just before the collapse of the U.S. financial markets. Rather than lament his timing, however, he reminded himself why he joined the Federal Way, WA lessor in the first place. He liked the company’s work ethic and long-term prospects. Most importantly, its risk management culture closely mirrored his past employers’.
Menzel spent 20 years working in a bank-regulated growth environment. Like his new colleagues, he clearly understood the value of risk management, disciplined processes, credit scorecards and other strategies that foster success in dislocated markets.
When he decided to join Financial Pacific two months prior, he expected to use his experience to help the company pursue growth opportunities. But, with the market’s startling collapse, his immediate priority was to assure its survival. “Anybody can manage a company when the market is strong, the economy is growing and demand is high with no losses — you just ride the ship,” Menzel said. “But, when things get rough, that’s when your skills are really tested.”
He quickly moved to verify the company’s credit policies and procedures were sound and took steps to further solidify its portfolio management and collections practices. These were all core competencies of the company and did not require any dramatic changes.
Menzel lived through similar economic cycles in the past. He was confident the market would eventually return and his job was to position the company for that rebound. From past experience, he knew the recession and sluggish recovery now underway would cleanse the system of weaker players and provide opportunities for the survivors.
Like many in the industry, however, Menzel was very concerned the credit markets would be restricted for a long time. So, it became a top priority to assure Financial Pacific’s funding partners were committed to riding out the storm. Today, while a sense of normalcy has not yet returned completely, the small-ticket lessor did turn a profit last year.
Menzel says the recession helped the industry learn what A, B and C credits really are and what kinds of yields are necessary to withstand losses during a downturn. He thinks many of the company’s competitors chased growth too aggressively leading up to the recession and did not have effective portfolio management strategies in place to deal with the fallout.
Sacrificing market share for effective risk management has helped separate the winners from losers during the downturn. But the biggest spoil for Financial Pacific, Menzel says, is that access to funding is relatively strong today. “It’s easy for funders to choose who to lend to, given only a few survivors are left standing,” Menzel said. “Our business model has been proven sound in the highly stressed marketplace.”
Menzel began his career in equipment leasing in 1975 with Puritan Leasing, a small independent lessor in Santa Barbara. Financial Pacific Leasing opened shop as a small, independent leasing company that same year.
In time, Puritan was acquired by California Federal Savings & Loan. It was then Menzel learned how to manage a leasing operation within a banking environment and tripled the size of its asset portfolio. This growth was due in part to the bank’s work with third-party originators. Ten years later, its leasing operations were sold to Santa Barbara Bank & Trust. There, Menzel managed a $285 million portfolio, again generated in large part via third-party originators.
Financial Pacific, likewise, began working more with local third-party originators in the early 1990s. It expanded its sales footprint nationally later in the decade. During this time, Menzel and his future employer competed against each other in a number of equipment sectors, although they targeted different credit classes.
“We were often talking to the same brokers as Financial Pacific,” Menzel said. “I gained a lot of respect for the company and its reputation and considered them highly professional and competent in their niche of the industry.”
Three years ago, Santa Barbara Bank & Trust’s parent decided to divest the bank’s leasing group. It was acquired by Leaf Financial, which transformed the operation into a production office. The long-term opportunities were not very appealing to Menzel so, when Financial Pacific approached him a year later, he was open to the idea of a fresh start.
One of the most appealing aspects of the move was the fact that both Menzel and Financial Pacific each had 20 years of experience successfully working with third-party originators. While some industry players are wary of this channel, Financial Pacific embraces it — carefully. Menzel explained, “We use third-party originators to scour the nation for the best deals that fit our parameters, balancing credit quality versus yield.”
Menzel knows that some brokers do a better job than others at evaluating credits and deals. It may not be their money, but they understand their responsibility to filter out deals that carry too much risk. He has known some brokers for two decades or more and trusts them. Of course, he also learned the importance of verifying their findings. Some are great at generating opportunities, but do not really understand risk from a portfolio lender’s perspective.
In this regard, the general equipment lessor’s higher-risk credits require strict diversification of the portfolio. Financial Pacific’s national footprint optimizes geographic risk.
The company continually monitors its portfolio to identify high-risk business and equipment sectors, made easier by the fact that it has captured credit details of the past 12 years of transactions. Financial Pacific can analyze data to quickly determine which assets are performing best (or worst). Unacceptable risk is readily identified.
With many of its traditional competitors now gone, Menzel says Financial Pacific has an opportunity to become a bigger player in vendor finance. In the past, with so much money in the market, a vendor could expect to get each deal funded at a competitive rate, regardless of credit quality. Today, however, few customers have no issues and equipment vendors are struggling with approval rates as low as 50%.
Well versed in risk-based pricing, the company is now a better option for vendors and has an appetite for working with customers with less than stellar balance sheets. “Before, vendors thought we were asking for too much yield,” Menzel said. “Now they’re more willing to participate in a pricing program with returns sufficient to cover our risk. They, in turn, are seeing a 10% to 15% increase in approvals and preserving the opportunity to close a sale.”
He also sees opportunities for expanding business with third-party originators as the economy improves. Others may disagree, but Menzel says they are more relevant than ever. His reasoning: with credit harder to secure from traditional sources, businesses are turning to brokers to find financing for needed equipment.
Financial Pacific is poised to withstand these turbulent times with a stable balance sheet, secure funding and promising growth opportunities. It appears Menzel’s confidence that first day on the job was, indeed, well founded.
Joe St. Henry is a communications professional and writer with Susan Carol Associates Public Relations, Inc., a full-service public relations firm. For more information, visit scapr.com and healthindustrywriters.com.
Managing Director, Head of Leasing National Sales,
The Bancorp Commercial Fleet Leasing
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