An Introspective View of Bank Leasing

One gets the impression that a lot of Chicago banking people, with their eyes on car leasing, are interested in the success or failure of the First Lease enterprise. Its failure will send many scurrying with their lease agreements to the paper shredders. Success will bring a host of imitators. Yet neither of thee happenings are desirable. With First Lease's success, imitators will clutter the marketplace; with failure, potentially capable institutions will turn their backs on an outstanding banking opportunity.

Leasing, with very few exceptions, has escaped the grasp of the automobile dealer. Independents have flourished and waned. Large rental companies have experimented with success and disappointments. Meanwhile, the common denominator to successful leasing remains: Properly selected vehicles, properly curtailed, driven by properly selected customers. All leasing companies follow this credo, at least in the beginning. But leasing, after all, is a financial labyrinth offering exotic tax benefits and mystical paper maneuvering! Creating an aura of mystery in which failing companies lose sight of the simple debit and credit accounting, and forget what it was they were in business to do in the first place ... to lease cars.

The exposure to a bank financing the outstandings of an outside leasing company is wide and complex. Vulnerability begins with the customer, unless the bank has control over the credit acceptance of the lessee. Then the bank must beware of the internal moods of the lessor. Is he grating easy credit, shaving curtailments and packing the value of returning vehicles to improve a sagging financial statement, or using his leverage to expand to other enterprises? Is he selecting bad merchandise? Or, is he selling the operation to a less desirable operator? Ironically, banks continue to finance outside leasing activities, accepting greater exposure than if they themselves were the lessor. A bank directing the thrust of its own leasing entity knows its motivations.

Automobile leasing, to be successful, requires unwavering procedural controls and close financial supervision. Many car dealers, by nature, lack the necessary disciplines. And some independents have become euphoric in financial maneuverings, giving automobile leasing a less than desirable profile in the financial theater. Car leasing is relatively young in the field of financing opportunities, and, as in most youthful endeavors, some stumbling is to be expected. The regulatory conduct inherent in a financial institution lends itself well to the supervision of a leasing enterprise. Therefore, when a bank takes on a car leasing function, it is not extending its routine unnaturally. It is an accession to what it already does well.