IMBEDDED JOURNALIST REPORTS FROM ELA FRONTLINE WITH EXCLUSIVE COVERAGE OF INDUSTRY BATTLES
Bylines: Capturing “Hearts & Minds” is Critical to Success
Search is on for WMDs (Weapons of Mass Demand)
Supply Lines are Open despite coming under Heavy Attack
By PAUL MENZEL, CLP
CHICAGO, IL - Despite assurances from the Iraqi Minister of Information that “Business has never been better and companies are experiencing triple digit growth with virtually no delinquency or losses”, three different and distinct themes emerged from a gathering of around 500 loyalists at ELA’s National Funding Exhibition.
The Fairmont Hotel at Grant Park served as the theater of engagement as 42 funding sources met with the elite forces of the leasing industry. Under chilly but crystal clear skies, a frenzy of meetings occurred over a Wednesday afternoon and full day on Thursday. The meeting room was efficiently laid out and well appointed for the series of 20 minute meetings between funders and originators. The schedules were set up in advance through the ELA website or on-site booth. Serious discussion sought targets of opportunity to set up coalitions for success. New relationships were pursued and celebrated at well-attended receptions at the end of each day.
Although total attendance (500+) was down 10% from the prior year and well below the annual exhibition’s highpoint of 738 in the spring of 2000, the number of Funding Source Exhibitors (42) increased by 20% over 2002. CentCom (ELA Staff) theorized that the increase in Exhibitors, along with a higher than usual ratio of Funder to Originator attendees, suggests a turning point in the economic war being fought in cities all around the country.
“Business is tough,” said Mike Fleming, President of ELA. “The showing at this conference reflects the exact same reaction our industry had to the last Gulf War and economic downturn ten years ago.” This is the second economic cycle the Funding Exhibition has experienced since it was established in the late 80’s. The Exhibit remains one of the most successful gatherings of industry professionals that the ELA sponsors. “The difference this time around is that low interest rates are having a positive impact on the cost of debt which is so critical to the survival of leasing companies holding portfolios”, added Fleming.
Edward Dahlka, Chairman of the ELA and President of LaSalle National Leasing Corp., reminded everyone that “Our industry always does better in a rising interest rate environment and it doesn’t look like we will start seeing that until the end of the war.”
For the first time in several years, the Funding Exhibition Committee scheduled two 90 minute breakout sessions on Thursday morning. The attendance at both sessions was so good that a few exhibitors complained that there was a noticeable drop in activity in the exhibit hall during that period. A high-energy atmosphere quickly returned for the remainder of the day.
The speaker’s panel for the first breakout session, titled “The Bank Market: What are they doing and what do they expect?” was moderated by Scott Gates of Diversity Capital and included Michael Evans, SVP of Sterling Bank Leasing, Dennis Roesslein, VP of MB Financial Bank, and yours truly. The follow-up session presented the lessor’s perspective on how the Best in Class of independent leasing companies present themselves and manage their funding relationships. The second session was moderated by William Verhelle, CEO of First American Equipment Finance, and included Chris Czaja, VP of Relational Funding Corp., and Tom Howard, EVP of Eplus Group, Inc.
An impressive cadre of leasing special forces went out of their way to capture the “Hearts and Minds” of the captains of capital. There was unanimous agreement on both sides that the key to success today and in the future was for leasing companies to take the time to get to know and understand their bankers and funding sources. Lessors described the extent to which they communicated with their bankers and the type and depth of information they provided to maintain the trust in the relationship.
The Bank sources emphasized how important the depth and quality of applications, term sheets, and credit packages has become in today’s business environment. The concern over asset quality and the increased regulatory burden were the primary reasons cited for this enhanced scrutiny. The spirit of the U.S. Patriot Act will require all financial firms to “know your customer”. Banks that provide non-recourse funds emphasized how important “attitude” toward the relationship and asset quality was in deciding with whom they will deploy their capital in the future. The times of “transaction risk transference” are being replaced by funding relationships in which the originator provides ongoing service as the intermediary.
A clear and present challenge facing the industry was finding “WMDs”. Weapons of Mass Demand are the only missing ingredients in the success equation for leasing companies and capital sources.
The absence of “cap ex’ was on everyone’s mind and the subject of every conversation. “When are businesses going to start spending to replace their equipment?” was the question of the day. Much speculation focused on when the economy might pick up or if we were facing a second dip into recession. The optimists were predicting a much better second half of 2003. Everyone agreed that the length of the war would be an important factor.
The first signs of spring in the Midwest interestingly coincided with a report that the Consumer Sentiment Index increased to over 83 in April from a ten year low of just above 77 in March. This possible sign of an emerging economy was followed over the weekend with a report of the first increase in retail sales in seventeen months.
The lessons of the first Gulf War may give us insight into economic prospects today. The one parallel in the war comparison that is hoped for is that the same prosperity emerges that persisted through the 90s.
Intelligence sources active at the Exhibition reported that substantial “chatter” was being detected between Funding Sources. Every Funding Source interviewed by this reporter revealed in private that they are anxious to lend and are struggling to meet growth goals. Even though it was acknowledged that portfolios were shell shocked, those Funders in attendance had clearly survived heavy attacks on credit quality over the last couple of years.
The present assessment is that “Supply Lines are Open”. A major difference from the first Gulf War recession is that we are not in a credit or liquidity crunch this time around. The supply side of the equation is not the greater challenge.
Thursday’s luncheon was highlighted by the leadership insights and secrets of Michael Abrashoff, former Commander of U.S.S. Benfold and former military assistant to the Secretary of Defense under the Honorable Dr. William J. Perry. Mr. Abrashoff was involved in critical missions during the Gulf War.
There are many lessons Mr. Abrashoff took from his military leadership experiences that are vital to success in business as well. He reminded the audience that, “We are all playing to win”. When he was first assigned to take over the U.S.S. Benfold, which won the prestigious Spokane Trophy for having the highest degree of combat readiness, morale was low and turnover was high. He discovered that they “…were spending more time fighting amongst ourselves than preparing to fight the enemy.”
Mr. Abrashoff advised our industry to attract and retain the best and the brightest; get employees to take ownership by empowering them to make decisions; find the rust in your organization; and allow your employees to have fun. His leadership anecdotes are the subject of his recently published book, It’s Your Ship.
While some prominent members of the leasing industry chose to stay home and not participate in the rebuilding of the funding landscape, the committed loyalists were busy in establishing coalitions for success in the future. Those in attendance were certainly counting on the adage that “to the victors go the spoils”, as they went home content that their attendance at the 2003 ELA Funding Exhibition was an important step in winning the battles for future prosperity.
Paul J. Menzel, CLP
Senior Vice President / General Manager
SANTA BARBARA BANK & TRUST
P.O. Box 60607
Santa Barbara, CA 93160-0607
1 South Los Carneros Road
Goleta, CA 93117
Dir Ph# (805)560-1650