April 27, 2000

Paul Menzel of Santa Barbara Bank and Trust, agrees with Mike Bennie's of Marlin Leasing assessment:

" Brokers should consider high quality, stable companies that have a strong track record when it comes to supporting the broker community. In choosing a funding source, choose one that is growing, even when other sources are pulling out of the broker marketplace. Ask your funding sources about their commitment to broker business, and get them to prove it."

Paul is kind enough to give us an "early edition" of his latest newsletter, coming out soon, he adds, germane to the topic:

SURVIVAL OF THE FITTEST
Pick Your Funding Partners Carefully

Over the last eight years, the Leasing Industry has enjoyed the strongest supply of capital it has ever seen. This is a result of the growth and acceptance of equipment backed securities, combined with the most robust economy in our history. We are experiencing a very fundamental lesson of supply & demand economics. The consumer, sharing the benefits with financial intermediaries, has reaped the rewards of a significant incremental increase in the supply of leasing capital.
The consequences, and consumer benefits, of such an imbalance has caused funding sources to climb over each other to compete for assets. The increased competition has come in the form of relaxed credit standards and skinnier spreads. The unprecedented growth we have all enjoyed, however, does not come without risk.
The recent spate of funding sources consolidating or exiting the leasing business is a disturbing manifestation of aggressive credit policies, driven by keen competition and fueled by a torrential flow of capital. The disturbing aspect of this phenomenon is that the deterioration of portfolio quality is occurring when business expansion and employment are at all-time highs.
The next challenge to our industry will likely come from those capital markets that have been developed over the last decade. Unfortunately, the capital markets for equipment backed securities are extremely efficient, causing the supply to be very fickle and reactionary. Any fear of credit quality deterioration or economic contraction will quickly result in higher costs and scarcer funds to the Leasing Industry
. I am sincerely hopeful that this scenario does not play out, but we mustn't bury our heads in the sand. It is important for our Industry to recognize, appreciate, and support the responsible deployment of capital. Our success is dependent upon the fitness of our Industry's funding sources. Reasonable credit risk at reasonable rates is a responsibility we all share * or there won't be enough to share.

*************************************************

Paul J. Menzel, CLP
Senior Vice President / General Manager
Leasing Division SANTA BARBARA BANK & TRUST
P.O. Box 1199
Santa Barbara, CA 93102-1199
1 South Los Carneros Road Goleta, CA 93117
(805)560-1650
PaulM@sbbt.com

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