An Objective History: The Reality & Truth About Bank Equipment Leasing

by Dale R. Kluga

Dale Kluga is a commercial banking and leasing executive with more than 40 years of consistent advancement in business development, credit, collections and operations. His demonstrated accomplishments include: founding and managing the commercial leasing business for LaSalle National Bank of Chicago nka Bank of America; founding partner of Great American Leasing Company, a small ticket leasing operation; founding partner of Cobra Capital (nka Providence Equipment Finance) a SME funding, portfolio servicing and bank leasing back office company; management of a portfolio servicing business for LINC Scientific Leasing; and co-founding a suburban banking facility at the age of 29 for LaSalle National Bank-Vernon Hills nka Bank of America. Recognized as a visionary and persuasive negotiator in successfully conceiving strategic direction and implementation of operations that have contributed substantially to corporate financial growth.

Dale Kluga offers an opinion on the history of the equipment leasing industry’s relationship with the banking industry and the sustainability of bank leasing in the future.

Since my first job at Continental Illinois National Bank in 1981, (which in 1988 became the largest bank failure in U.S. history at the time), I’ve always been a hopeless proponent of convincing banks to enter the leasing business including, but not limited to, the many articles I have written for the Monitor over the last 43 years, including my 1999 article, “Community Bank Leasing…Emerging Growth Opportunities.”   


Former Monitor publisher Jerry Parrotto was also a die-hard supporter of getting banks into the leasing business and keeping them there. Not just for ad revenue but also, like me, to help legitimize the business. It was no coincidence back in 1999 that both Jerry and I felt our small ticket lessors were in trouble and it was going to get worse. The timing of our article was to anticipate and diffuse the potential adverse perception banks had of the leasing industry at the time when small ticket lessors were failing by the day from the small ticket leasing crisis of 1999 and 2000. It was a complete failure of small ticket leasing credit management and a potential stain on our industry after many small ticket companies failed and liquidated.

It was a tough time, which got even more challenging a year later in 2000 when the dot com crisis hit our business hard once again. If that wasn’t enough, another year later in 2001 came the 911 attacks which nearly annihilated the travel, hotel and conference businesses. Three consecutive years of crisis hit our industry hard. Note that we are still standing today, without being bailed out by taxpayers. At that time, bank capital was relatively healthy, and our industry was not. So, we were on the defense to demonstrate to bankers that we still had a brain and knew what we were doing.

The Tables Have Turned

In contrast, today, the banks are suffering from their $1 trillion in collective “unrealized” losses on underwater fixed income securities and another $3 trillion from CRE insolvency exposure — collectively exceeding the capital of the bank industry if you marked to market to current values.

There are currently little, if any, clear solutions articulated by the Federal Reserve or other bank regulators. This situation is similar to the lack of a backup plan during the Great Recession, other than to bail out our trillion-dollar zombie big, money-center banks. Banks failed and not one CEO went to jail; taxpayers simply bailed them out with TARP and indefinitely created a new moral hazard, which was engineered into our financial system.  

So, you can guess how the government will likely respond to today’s crisis if the Fed refuses to bail out bankers by quickly lowering rates this year. As the Fed’s chair, Jerome Powell, unapologetically said during his recent testimony to the Senate Banking Committee, “banks will fail.” Indeed, the Fed will let banks fail and pass the buck back to the FDIC and Congress and simply have them bail out the insolvent banks. 


After all, the Fed cannot take another “transitory” reputational risk and totally blow it like they did in 2021, which brought us to our current 40-year record inflation levels. But wait a minute, what about the fact that there’s nothing close to $4 trillion in the FDIC insurance fund reserves? Gee, what happens next? You got it: taxpayers will open their wallets and prepare to pay for yet another bank crisis on the heels of the last Great Recession. 

Sustainability of Bank Leasing

Back to the sustainability of bank leasing and what it means for our industry, in my opinion. Despite all the gargantuan, credible improvements all of us have collectively made in advancing the reputation and performance of our industry, the question is not how leasing can help banks. 


We already know the high intrinsic value we have continued to consistently provide to banks since we learned our lessons and licked our wounds. We have transitioned from our place in the 70s as a non-economic, tax-oriented limited-value business into a legitimate and robust provider of economic value to every small, mid-size and large business inside and cross-border to outside of the U.S. Millions of businesses have acknowledged our industry’s legitimacy. 


I argue that the problem is not banks’ acceptance of our successful industry. We know we add value, and the public markets outside of the banking industry are rock-solid proof. The real problem is bankers’ complacency and selfish reluctance to acknowledge the failures of their industry. 


As I have repeatedly said ever since being a firsthand witness to the largest bank failure in U.S. history back in 1988: bankers, generally speaking, have no material skin in their own game and that is what precludes them from waking up and fixing their own failed business models. 


Next time a bank lender criticizes you for your 3:1 very reasonable balance sheet leverage, do what I did in 1996 when I started Great American Leasing Company, (aka Galco), and pull out their annual report from 2023, hand it to their CEO and remind them of their ridiculously high 20:1 to 30:1 tangible balance sheet leverage. Then ask them how much direct ownership they have in their own bank. Then tell them to get a real job and learn what we all have learned over the last 40 years in our business and then maybe, just maybe, these bank moral hazard bailouts will stop. 


People at risk are much smarter than corporate bureaucrats. It’s the banks that need us more than we need them. Once they become humbler and really start believing that, only then will things change for the better in the banking business. 


That is the number one lesson I have learned about banks since 1981. 

The opinions expressed in this article are those of the author and do not necessarily reflect the opinions of Monitor and its staff.

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