Dexter Van Dango,
Senior Executive,
Equipment Leasing & Financing Industry

There is really nothing new in the leasing and finance business; what goes around comes around. Industry participants who proclaim that high interest rates are the reason for their diminished new business volume are either young, naïve, ignorant or all of the above. They obviously did not experience the 1980s.

For a variety of reasons, the U.S. has benefitted from artificially-deflated interest rates for an extended period of time. For more than a decade, low, single-digit interest rates were considered the norm — but they were actually a “thing of the past.” Considered common in the 1940s or 1950s, they went away in the 70s and 80s.

When I got into the leasing business in the early 1980s, I worked for the largest company in America, where we charged 18% to 20% interest on our lease and loan transactions. In the 1990s, the firm where I worked charged 1,000 basis points spread over our cost of funds on hundreds of millions in annual fundings. We clearly made generous profits.

THOUGH, THE GAME HAS CHANGED.

Today, companies compete by shaving points on deals. They accept 20, 30 or 40 basis point spreads on deals ranging from tens of thousands to tens of millions. There is a lack of sanity in the realm of competitive pricing. Historically, the worst culprits were the banks. Read the most recent Monitor 100 edition to see how poorly the banks have fared in the current environment. They pulled back and adopted a much more conservative approach once the credit markets began to tighten and delinquencies rose. The swan song may have already played for many bank lessors, especially foreign nationals that saw the U.S. market as a playground. Watch them disappear as their horns are drawn inward. Société Générale is the most recent victim. Others are sure to follow.

We are left wondering if there are market segments and competitive categories that will remain dominant. I have always been a big supporter of independents. They have the prerogative to make their own rules. If they harness their risk parameters and resist the urge to grow too fast, independents can thrive nicely in the current economic environment. So, too, can specialty lenders, who frequently have private equity or hedge fund ownership. Commonly labeled independents, these firms represent an entirely different type of competitor.

Captives continue to play a vital role in equipment leasing and finance. They, too, play by a different set of rules. Their purpose is to help their parent sell more product, not to make a financially viable finance or leasing company. Caveatemptor!

One cannot reflect on “what’s new” without commenting on what used to be. Gone are the days of dominance by GE Capital, the super acquisition machine that swallowed too many companies to successfully digest. The firm formerly known as CIT remains an important participant in the industry, but it no longer boasts of assets and volumes that represented its heyday, and the prolonged evolution US Express Leasing, EverBank, TIAA, EverBank leaves us wondering how much overhead is spent on the printing of business cards.

Rest assured, I may have taken a sabbatical over the past two years to clear my head, gain some insight and grow my creativity — I’m not back. I hope to contribute when I have something meaningful to share or when the political battlefield becomes too vociferous to ignore. •

Dexter Van Dango is a pen name for a real person who is a senior executive with more than 25 years of experience in the equipment leasing industry. A self-described portly, middle-aged, graying, balding leasing guy in the twilight of a mediocre career, Van Dango provided occasional insight from the front lines via Monitor.