March Madness: Charting The Capital Markets Chaos of 2023

by Scott Kiley Mar/Apr 24
In 2023, the equipment finance capital markets space experienced the most dramatic and rapid changes since the Great Recession. Scott Kiley recounts the flurry of events that unfolded in his new column, Capital Markets Corner.

Scott Kiley,
35-Year Capital Markets Expert,

Recently retired after a 35-year career in the equipment finance industry, including the last 25 years at Fifth Third’s Equipment Finance Capital Markets Group, I’m excited to announce the launch of a new series of articles in upcoming issues of the Monitor. Welcome to the Capital Markets Corner!

Over a 22-year period as a buyer at Fifth Third, I purchased more than $6 billion of equipment lease and loan paper from the top bank and independent lessors in the industry. I spent the last four years managing the capital markets team, purchasing more than $2.4 billion and selling more than $1.9 billion of paper during my leadership. Each article in this series will explore the issues impacting the state of our capital markets. I will also share my insight on what I believe it takes to be a successful buyer or syndicator and how to build a respected capital markets team.


A fitting beginning for this series is a recap of 2023, in which we witnessed the most dramatic and rapid changes to our industry since the 2007 to 2008 financial crisis. The destabilization of the normal operating rhythm of our capital markets activities sent shock waves through the industry. It began in March, when, over the course of five days, three mid-sized banks failed, triggering a sharp decline in global bank stock prices and a swift response by regulators to prevent a global contagion.

After years of near zero interest rates, which we can now admit was not healthy, the Federal Reserve started increasing rates rapidly in 2022 to dampen inflation and slow down the economy. The rapid rate increases exposed Silicon Valley Bank, which had incredulously invested heavily in low-rate, long-term government securities with no hedging strategy. The plummeting values of these securities couldn’t be monetized quick enough to meet depositor withdrawals, so the Fed had to step in. Suddenly, many regional and mid-sized banks faced possible credit downgrades in the wake of these U.S. bank failures due to unrealized losses on their securities portfolio, placing their fair market values vastly lower than their book values based on required U.S. accounting standards.

Many of us were in Chicago in March attending the 2023 Equipment Leasing and Finance Association National Funding Conference when word spread quickly that Signature Bank, a major equipment finance capital markets player, was being taken over by the Fed, which would pick a suitor. We dutifully put our game face on that day and made our preplanned pitches to our buy/sell capital markets partners based on our current outlook for 2023. Most of us knew things were going to change, but I doubt many could have predicted the magnitude and speed of changes we have lived through in the last year.

Shortly after we left Chicago, it became clear that the 2023 playbook we wrote early in the year had to be thrown out and rewritten. A period of long-term stability, liquidity and competitive pricing was replaced with a frantic chase to keep track of how each of our buy/sell partners were adapting to the new world order.


Regional banks became the center of unwanted attention as each pleaded their case to investors and regulators that their assets were sound, hoping to calm depositor fears and regulator concerns. The Fed stepped in to protect depositors while signaling to regional banks their intention to institute more stringent regulatory capital ratios incorporating the unrealized losses in securities portfolios and increasing liquidity requirements.

Nearly every regional bank made an immediate decision to focus on stabilizing deposits while slowing down loan growth and preserving capital. The quickest way to slow loan growth is to allocate higher cost of funds to each loan origination group and institute higher return hurdles for all new loans. This had a chilling impact at most regional bank buy desks, with some halting all new production while others, like Fifth Third, immediately increased pricing and credit requirements to meet lower production targets put in place.

Each buy desk transitioned from a high production mode to a slower, or halted, production mode at their own pace during the year.

The most interesting group to watch were my friends at Signature Financial. After buying Flagstar in 2022, NYCB (who also has a strong equipment finance buy shop) acquired most of the assets of the struggling Signature Financial including the equipment finance business. After the merger, Signature and NYCB made a point of signaling to the capital markets a “business as usual” approach not only by honoring approvals but offering competitive rates for new business throughout 2023. Coming full circle, Signature and NYCB recently put a pause on equipment finance buy desk originations as the parent grapples with meeting the more stringent regulatory capital and liquidity ratios for banks with assets greater than $100 billion.

A few other banks, like Huntington and Regions, “didn’t get the memo” to slow down in March, so they capitalized on their position of strength during the summer and into the fall to capture market share. Huntington did an about face in fall by raising pricing requirements significantly and ramping back production. Over the last several months, various regional banks, including Huntington, Citizens, Key Equipment Finance and Truist, have reduced their equipment finance organizations as their parent bank decided to allocate less capital to these asset-rich groups who do not generate any significant deposits. It’s been true for many years that when banks want assets, especially fixed rate assets, they love their equipment finance groups and especially their buy desk. Over the last year, we have seen how fortunes can change quickly when accumulating assets becomes out of vogue and capital becomes king.


Now let’s look through the lens of syndicators viewing the “March Madness” event. Strategies had to adjust quickly, as you could hear the sucking sound of liquidity coming out of the market. Pricing power shifted to the buyers who were still active in the market. The first order of business was to check in with each investor on outstanding approvals. Most funding sources held pricing for near-term fundings while fundings later in the year had to be repriced to get funded. My experience was that most approvals were honored either under the original terms or with reasonable upward adjustments to the pricing agreed to by all parties.

The second step syndicators took was to inform their direct sales teams that new equipment loans and leases targeted for syndication had to be priced at higher spreads to clear the market — a message not well received by the equipment finance relationship managers or their customers. The trillionaire banks — Wells Fargo, Bank of America and JPMorgan, which had a distinct cost of funds advantage before the crisis — suddenly became even more attractive to depositors looking for safety. The equipment finance groups at the trillionaire banks were not only able to fund their customers’ needs with competitive pricing, but many took this opportunity to gain market share from the regional banks. Deals these large banks would have historically syndicated were now being held because they didn’t want to disrupt customer relationships with significantly higher pricing.

Syndicators had to update and add to their investor rolodex as the marching orders each investor followed were changing so quickly. This market volatility required syndicators to reach out to more investors for each deal than they might have done previously. You not only needed a Plan A, but a firm Plan B and C for each syndication. If a syndicator has an awarded deal, it is still generally true that they can find a home for the deal, but it is definitely a longer and more complicated process than it used to be. The void left in the market by the retrenchment of many regional bank buy desks allowed others such as Wintrust, Hancock Whitney, First Citizens and Mass Mutual to step in and increase market share.

To say 2023 was a year of rapid and significant change in the equipment finance capital markets space is a gross understatement. We all had to work much harder to be productive at our jobs and stress levels were running much higher at many organizations. Unfortunately, many people lost their jobs as capital and liquidity trumped asset growth. I wonder if these same organizations will regret how much they cut staff when asset growth becomes more important. The period we are in now has been more prolonged than I anticipated. One thing I know for sure is that, eventually, bank stock analysts will start focusing again on loan growth in quarterly calls. When that happens, equipment finance groups will once again be given the green light to grow! •

Scott Kiley recently retired after a 35-year career in the equipment finance industry, including the last 25 years at Fifth Third’s Equipment Finance Capital Markets Group.

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