December 28, 2000

Whatsup!!!!

Not much is happening in the leasing industry this week, although it is the end of the year. Most leasing companies seem to be on "skeleton crews" and things seem to be in a "clean-up" mode.

Sierra Cities merger with Vertical Net seems to be moving along. We will get the official news late tomorrow and I am sure staff will then have a good reason to celebrate the New Year!!!

Unicapital: " Stop payments have been placed on several vendor checks, and we like everyone else are left hanging in the wind. Nice way to end the year and close the books huh?"

name with held

Off the record, I would like to say I agree with the former employee who wrote in a few days ago. Things were certainly different just a year ago. We had strong leadership. We had people in charge who not only cared about the company and the business but their employees. We were highly motivated to come to work and do a great job. I know that I don't speak for myself when I say I looked forward to coming to work on Mondays. I don't feel that way anymore and neither does anyone else. It was a great place to work back then.

But that all changed about last March when the Vice President and President both left. That's when someone new was brought in to be Vice President. This person was brought in to drum up business and take charge of the broker relationships. What a joke. All he did was instill fear in his employees. This is a person who went around bragging about people getting fired, and threatening to fire people. He has his favorites and if you are not one of them then look out. You are ignored and treated as if you don't exist. The brokers do not like him and neither do the employees. I don't know what Steve Dallas was thinking when he brought him in. It was the worst morale killer possible and the worst thing that was done at United.

On the first of the year we are supposed to be accepting new applications again according to what Steve Dallas said a few weeks ago. As of today we have not heard anything about that happening next week. In fact, we have not heard anything from management about what is going on. Peter is off skiing in Aspen and Steve Dallas has been a no show at the office. We are scared and worried. No one is talking. Everyday that we come in could be our last. We have had numerous days off lately because there is nothing to do. We just wish they would be honest with us.

Anonymous

+ + + +

Finova Credit Ratings Slide, Bankruptcy an Option, it is reported.

Finova sacred the marketplace when it said to the financial community for the first time it may need to seek bankruptcy protection, if a plan that would excuse it from paying back all of its own debt falls through. This was not good news for those trying to hold it all together. The New York Stock Exchange following is very negative against leasing companies, particularly in lieu of Unicapital bankruptcy, problems at United Capital, and the year 2000 demise of many "super brokers" and "securitized lessors."

The Dot.com industry has also taken a lot of hits, and many of these companies received liberal leases underwritten by banks and "securitized lessors." Yields have been down, and more importantly, write offs really cut into your yields. The viewpoint of Vertical Net acquiring Sierra Cities is basically they had not where else to go.

Standard & Poor's and Moody's Investors Service has downgraded Finova's ratings. Supposedly there may be a court-supervised "reorganization."
Finova has about $11.3 billion of bank and public bond debt, according to a recent securities report.
Standard & Poors cut its senior unsecured debt ratings for Finova Capital, Finova's principal operating unit, three notches to "B," a medium junk grade, from "BB." Its rating outlook is negative. Moody's cut its equivalent rating to "Caa1," a low junk grade roughly two notches below S&P's new rating, from "B3." Both agencies also cut several other Finova ratings, and Moody's said it is reviewing its ratings and may cut them again.

Finova said that it and Leucadia National plan to propose a "comprehensive restructuring" to Finova's bank lenders and public debt holders. Leucadia, a New York-based holding company, agreed last week to invest up to $350 million in Finova. In view of the percentage of the securities it holds, this may be viewed as short term operating capital. Finova said the restructuring "will likely entail a principal reduction in the form of debt forgiveness, an extension of some maturities and the granting by Finova, of security." The company said substantially all of its lenders will have to agree to the restructuring for Finova to avoid possible "reorganization under protection of the courts." In a filing with the Securities and Exchange Commission, Leucadia said Finova has about $4.7 billion of bank debt and about $6.6 billion of public bond debt. Finova first said in May it was exploring "strategic alternatives" including, at minimum, asset sales.

( I hope to get to the chronological order of the List this weekend and up-date, as I am a week behind in getting this done. editor ).

1 Held, 1 Sought in Internet Fraud Cases

Crime: Authorities say the two men received $110,000 for goods auctioned on EBay but not sent to winning bidders.

By JOSH MEYER, Los Angeles Times Staff Writer

Warning that the Internet is a growing haven for con artists, federal authorities arrested one man Tuesday and were searching for another suspected of ripping off buyers on the EBay online auction site.
Assistant U.S. Atty. Dorothy L. Shubin said the two unrelated cases were among the first criminal prosecutions in the booming online auction business.
George Arthur Cruz of Artesia and Hen Ben Haim are accused of offering to auction dozens of expensive computers and other electronic goods on EBay, the largest Internet auction service. When winning bidders sent in their money--a total of more than $110,000--they received nothing, according to federal indictments made public Tuesday.
"It's an old-fashioned fraud using new technology: promising products and not delivering," said Shubin. "But using the Internet gives the defendants the ability to reach victims all across the country."
More than 240 alleged victims mailed checks or money orders to the Los Angeles area after submitting winning bids for laptop and desktop computers, camera equipment, musical instruments, Nintendo games and replicas of football helmets.
U.S. postal inspectors were able to intercept checks and money orders from 18 victims totaling $34,000, Shubin said.
Cruz, 31, and Haim, 27, of Encino, were indicted last week by a federal grand jury. But those indictments were sealed until their arrests.
Authorities arrested Cruz, also known as Richard Cortez, early Tuesday at his work place in Norwalk. They declined to say what Cruz did for a living.
Cruz, who could not be reached for comment, posted $70,000 bail at an afternoon hearing and is set to be arraigned next week on 13 felony counts of mail fraud and one felony count of money laundering.
Cruz faces a maximum sentence of 75 years in federal prison if convicted on all counts.
If found guilty, Haim could serve up to 40 years. Since his indictment, authorities have been unable to locate Haim, also known as Shay Albaz. The grand jury has formally accused him of eight counts of mail fraud.
Cruz and Haim used aliases, the indictments allege. Cruz registered on EBay in September 1999 under such names as John Reese, Oscar Gamboa, Robert Dennis, Jon Wolf, Dean Liu and Thomas K. Connors.
When he posted the fraudulent auction listings, Cruz "concealed the fact that he either did not possess the merchandize he was offering for sale, or that he did not intend to deliver the merchandize to the purchasers," said the indictment.
After notifying bidders they had won, Cruz told them to send checks or money orders to a Tustin mail drop he had rented under the name Richard Cortez.
An EBay representative said fraud is rare on the Internet auction site, especially if buyers take advantage of precautions offered by the San Jose-based firm.
"Fraud is going to occur in any environment in which people are buying and selling goods," said EBay spokesman Kevin Pursglove. "It is not new or unique to the online world."
Among the safeguards EBay has set up, bidders can read evaluations of sellers by previous buyers, and an escrow account can be used to hold payments until the goods are delivered. The company also offers dispute resolution and up to $200 in free insurance to repay fraudulent losses.
Shubin said fraud opportunities will increase dramatically as the use of such Internet auction sites grows. Market research studies have estimated that online auction sales will total about $25 billion by 2005.
EBay commands as much as 90% of the online auction business, but it faces competition from hundreds of other Internet sites.
Some buyers also are accused of fraud. Last year, Newport Beach police arrested a Stockton man on suspicion of using phony bank checks to buy a Rolex watch and dozens of laptop computers on EBay.
Shubin said federal prosecutors, along with the Postal Service and the FBI, are investigating several other Internet auction fraud cases, calling such auction sites a fraud "growth area."

Lease Credit Card Scam Comments:

I just read Barry Reitman's characterization of the "credit card" scam that has been perpetrated by some of the less scrupulous members of our industry for the past several years. I must say that it is one of the most succinct and lucid arguments I have ever heard against that practice. Like all such practices, it appears that this one's time has also passed. We all know that the fast buck artists will eventually take themselves out. Let's not forget the funding sources who were all over this business. If leasing companies that engage in these practices couldn't find funding sources to support them they wouldn't have such a negative impact on our business. Instead we end up with another sacrifice to the "Volume god" that we all end up paying for in the form of higher rates, tighter credit criteria and continued mistrust of third party business. Thanks again to Mr. Reitman for his accurate characterization of the moral turpitude that the scammers display.

Bob Rodi
LeaseNOW, Inc.
drlease@leasenow.com

Daniel Leclerc Appointed to Farm Credit Leasing Board of Directors

MINNEAPOLIS--(BUSINESS WIRE)--Dec. 28, 2000--Daniel A. Leclerc, principal of Crestwood Capital & Associates, has been appointed to serve a two-year term as director of Farm Credit Leasing. Leclerc, a leasing industry consultant, is the retired president and CEO of Norwest Equipment Finance, Inc., now Wells Fargo Equipment Finance, Inc., a leading bank leasing and equipment finance company located in Minneapolis, Minn. Prior to that, Leclerc was the founder and principal owner of Crestwood Capital Corp., a Minneapolis based financial services company, acquired by Norwest Corporation in 1989. He has also held marketing and credit positions with St. Paul Leasing Company and GE Capital. Leclerc, a former director of the Equipment Leasing Association (ELA), has served on the boards of several leasing and financial services companies.

As an appointed, outside director, Leclerc is the only director of FCL's seven-member board from the leasing industry who does not directly represent the stockholders or customers of the leasing corporation. Non-stockholder board members, such as Leclerc, serve two-year terms with a limit of two consecutive terms. By virtue of FCL's charter, Leclerc will be eligible for reappointment in 2002.

Three of FCL's other board members represent the company's two common stockholder banks in the Farm Credit System. Those individuals are: Chairman Douglas Sims, chief executive officer of CoBank in Denver; Vice Chairman Steven Montgomery, executive vice president, Agribusiness Division, of CoBank; and F.A. (Andy) Lowrey, president and chief executive officer of AgFirst Farm Credit Bank in Columbia, S.C. The remaining three directors represent FCL's cooperative, agribusiness and Farm Credit System customers. They are: Peter Scott, executive vice president and chief financial and administrative officer of Beringer Wine Estates in St. Helena, Calif., and Bill Lipinski, chief executive officer of First Pioneer Farm Credit in Enfield, Conn. The company's board seat designated for a cooperative customer is currently vacant.

FCL provides equipment leasing and related services for all types of vehicles, equipment and machinery to agricultural producers, their cooperatives, rural communications and energy companies and Farm Credit System entities. The company is also actively involved in the syndication of multimillion-dollar lease projects and lease portfolio servicing. It is one of the nation's largest agricultural leasing companies. In addition to its corporate headquarters, FCL maintains 10 sales offices throughout the country.

FCL is part of the 84-year-old, $91 billion Farm Credit System, one of the largest and oldest cooperatives in the nation. Today, this national network of approximately 175 borrower-owned banks, associations and service corporations provides production agriculture with approximately one-quarter of its credit and financial needs. CoBank, one of seven banks in the Farm Credit System, is FCL's majority common stockholder. With $24 billion in assets, CoBank specializes in agribusiness, ag export, rural communications and rural energy financing. AgFirst Farm Credit Bank of Columbia, S.C., owns the balance of FCL's common stock. The other five Farm Credit Banks also have an ownership stake of preferred stock in the company.

CONTACT:

Farm Credit Leasing, Minneapolis

Brian Delgado

Phone: 763/797-3418

Fax: 763/797-3555

National City Expands Online Banking to Small Businesses

CLEVELAND, Dec. 28 /PRNewswire/ -- National City Bank announced today that it has introduced online banking for small businesses, giving them convenient, real-time access to banking services that are tailored to meet their needs.

"National City is helping small business customers access vital banking services anytime, anyplace at the touch of a keyboard," said Mike Price, senior vice president and head of Small Business Banking at National City. "We are providing small businesses the financial tools they need to manage and grow their businesses, with the flexibility, speed and convenience of online banking."

National City's Small Business Online Banking offers many advantages. It enables small businesses to review their account activity, transfer funds between select accounts, exchange electronic messages with National City and pay their bills electronically, if they choose. Another benefit is that National City's Small Business Online Banking displays real-time balances, which reflect branch and ATM activity, providing customers a convenient, up- to-the minute overview of their accounts.

This new secure service for small businesses is quickly and easily accessed at, www.ncb4bizonline.com or from National City's Corporate Web site, www.national-city.com .

National City's Small Business Online Banking also enables small business owners to give select individuals, such as employees or their accountant, full or partial access to their accounts online to perform some banking and bookkeeping operations. The small business owner can limit access to certain accounts and turn access on and off at any time.

QuickBooks(R) Updates

Small Business Online Banking also provides direct access to account information via QuickBooks 2000 for Windows(R) (or higher) software. After an initial set-up, the user simply inputs his password and clicks the "update" button in QuickBooks and the software automatically downloads the small business' transactions into its general ledger.

Online Bill Payment

Option Small Business Online Banking is free to all National City small business customers with a business checking account. The Online Bill Payment option is available free for a 90-day trial period. Following the trial, it's $5.95 per month including 25 online bill payments (additional payments are 50 cents each).

For more information about Small Business Online Banking, small business owners can call 888-NCB-4BIZ (622-4249); or visit our Web site, which includes an interactive demo, at ncb4bizonline.com .

Small Business Banking

National City is committed to giving small business owners the innovative banking services they need to grow their businesses and provide for their employees. Along with checking and savings accounts, these include specialized lines of credit, online banking and payroll services, employee benefit packages, flexible leasing programs, and Business CheckCards. National City is the fifth largest small business lender in the country and the no. 1 Small Business Administration lender in its six-state market with more than 1,200 branches in Ohio, Pennsylvania, Indiana, Illinois, Kentucky and Michigan. Through its Small Business Banking Initiative, National City is expanding its Small Business Banking product line and will provide more than $1.4 billion in small business loans in 2001.

About National City

National City Corporation (NYSE: NCC) is an $85 billion financial holding company with headquarters in Cleveland, Ohio and banking assets ranking 12th in the United States. The company offers a full range of financial services for individuals and businesses. National City has offices in Ohio, Pennsylvania, Michigan, Indiana, Kentucky and Illinois. National City can be found on the World Wide Web at www.national-city.com .

SOURCE National City Corporation

CO: National City Corporation

E-mail: bdelgado@fcleasing.com

" Risk Based Pricing"
by Bob Rodi

I want to address the points made regarding credit scoring in the responses over the weekend. There is a general lack of understanding regarding the way a credit scoring system provides the most value to the lessors using it. I learned this from one of the deans of credit scoring, Mr. Don Sanders. As you may remember, at my request, he has been a very frequent speaker at many of the UAEL conferences. His company, Credit and Risk Management, Baltimore, MD. was purchased 3 years ago by Fair-Isaac. Don's experience goes back 35 years to the days of the first automated score cards where he was on the original development teams at such companies as Commercial Credit Corporation. He subsequently worked as a consultant for the likes of HFC and many banks across the US. Don's expertise evolved away from developing scorecards and toward the proper use and implementation of the cards. Most of my knowledge of Risk Based Pricing comes first hand from Don Sanders. I will try to have him back for a future UAEL conference. I believe his presentation will mean a lot more to the attendees who are now trying to learn as much about this issue as possible.

Risk Based Pricing is the only true way to maximize the use of a score card. From an historical perspective almost everyone "knows" what their bad debt will be. Unless their is some monumental change is business methods this is pretty predictable, even with swings in the economy. Almost everyone would like to buy more aggressively to increase their volume. The question is, "How do you do this without having your portfolio go in the tank?". The answer to that lies with Risk Based Pricing. With a properly implemented risk based pricing strategy a portfolio can be segmented into groups, based on score ranges. As soon as a lessor gets enough experience with any discreet group of transactions, that group can be set up as a segment of the portfolio and then priced according to the risk it poses to the overall portfolio. Certain "discreet" groups within a portfolio will pose a less than average risk and certain groups will pose more than an average risk. We all know this from our subjective credit training. To put it in the words of one of the leasingnews respondents "we know a bad deal from a good deal".

Is it then possible to automate this process and buy more deals that were formerly considered bad? The answer is yes. This is where Risk Based Pricing comes into play. Once you have segmented your portfolio into several broad segments the next step is to price those segments, which pose more or less risk than average, and bring them into line with the "average" portfolio risk you are willing to accept. This is accomplished by calculating the "group bad rate", for every group in your portfolio as if it were a separate portfolio. Once this is done, you can calculate additions to, or discounts from your "overall portfolio bad rate". These amounts then become enhancements or discounts to your pricing. While they are not always perfect the first time out, if a program like this is thoughtfully implemented it will allow you to increase your volume while properly reserving for incrementally riskier transactions. It should also allow you to lower your pricing in the groups that pose less risk to your portfolio. As a portfolio develops, minor adjustments can be made to the groups, or entire new groups can be created. If you increased your pricing for a "high" risk group, then all of the increase, or rate enhancement should go to the reserve set up for that group. You can expect bad debt to be higher but your pricing on those transactions will reflect the risk they represent. You have now expanded your buying window without posing an undue threat to your overall portfolio. If you think that raising the prices according to risk will run customers off, then that's OK. Isn't it better that someone else buy those deals at a lower price rather than you or your funding source? Once you have allowed for the reserve you should make the same spread on each transaction. You expand your profit opportunities by virtue of buying more transactions at the same spread and "over reserving" for those transactions that pose an above average risk.

According to Don Sanders, every customer in your portfolio could be a "portfolio of one". Over time you can theoretically gather enough accurate portfolio data to price each customer according to the risk they pose to the portfolio. While segmenting to this extent is not practical, the long term effect will be a "narrowing" of the gray areas. Once enough data is gathered on the gray area transactions, those transactions will begin to fit into the portfolio groupings described above. As this occurs more and more processing will be automated and there will be very few "gray area" transactions.

I would also take exception to the statement that equipment is included as part of any scoring system. This is not true unless the scoring system has been developed for a specific type of equipment or a very narrow vertical market. To the best of my knowledge "equipment" has been examined as a variable many times without producing much "predicative lift" to the overall credit score. This, however, is where subjectivity still comes into play in decision strategy. Hard collateral, such as machine tools, could provide a "back door" out of a deal. Because you have a well structured collateral transaction you may be inclined to extend your approval window below that which you would use as a cut off for computer systems. This strategy works especially well with a captive program, where you would be applying your scoring strategy to transactions that involve equipment from one manufacturer and you would want to provide a rapid response program to their distributors. This strategy will not apply to a general lessor who does all types of equipment. There is no way that I know of to "score" a broad range of equipment in a meaningful way.

When the scoring systems were initially implemented this was done so without the benefit of Risk Based Pricing. This was a grave error on the part of most of the lessors that initially deployed automated scoring. Without Risk Based Pricing automated scoring simply provides you with the opportunity to buy more bad deals faster or simply automate your current underwriting criteria without expanding volume. While it would appear that many companies set out to capitalize on this opportunity, I am fairly certain that nobody did so with the malicious intent of buying a lot of bad paper to "enrich" themselves personally to the detriment of the rest of us in the leasing business. This simply occurred because many companies jumped on the "automation band wagon" with absolutely no strategic plan and a lack of understanding that bordered on ignorance. Many of those companies are now members of the "List" instead of the leasing community.

Why should the average broker care about all of this? The bottom line is that our business is very complex. Someone will have to explain and "sell" these programs to the lessees and vendors. The next big mistake will be that everyone will attempt to implement these programs without having personnel that are properly trained to deploy and market them to the customer base. I believe that these people will come from the ranks of the third party community. My advice would be to learn as much about credit scoring and automation as possible. This will be valuable knowledge that the broker will be able to leverage in their negotiations with funding sources. The funding sources will always need knowledgeable people who will represent them professionally and be able to explain their programs to customers. Too many brokers fear the fact that funding sources will no longer need them to originate mainstream transactions. This may be true, however the need for "fulfillment" services will increase. If you doubt this at all, then you are one of those that believed that the internet brokers would put us all out of business. That did not happen because you just can't provide 5 approvals to a customer who has to sort through them and make a decision unilaterally. That aspect of automation was a total mis-calculation. There was little or no provisions made for "fulfillment" in any of these models.

The funding sources do not have the personnel who are trained to provide these services at this time. This coupled with the fact that there will be more and more opportunities in niche markets should provide the highly skilled third parties with several years of opportunity . Instead of fighting these trends, embrace them and use them to your advantage. Many will have to alter their thinking from a "deal" oriented mentality to a "relationship" oriented mentality. This will mean examining opportunity from a much broader and longer term perspective than "How may points can I make and how low is my buy rate?" Those that can make this adjustment have a bright and profitable future in the automated, credit scored world.

Good Luck to everyone in the New Year and thanks to everyone that responded to my comments this past year, both positively and negatively. As long as there are questions, responses, debate and dialog we will all be more intelligent and better informed. This will make for a stronger leasing community overall. While 2001 may get off to a rocky start, look for a steady upward trend with a strong finish and a full head of steam going into 2002.

Bob Rodi,
LeaseNOW, Inc.
www.leasenow.com
drlease@leasenow.com
1-800-321-LEAS(5327)