The Year Ahead

Dark Clouds and Silver Linings

As we enter the second half of 2011, the market continues to present mixed signals: while financing demand is up, according to the most recent Monthly Leasing and Finance Index (MLFI) issued by the Equipment Leasing and Finance Association (ELFA), business confidence is down per the Equipment Leasing & Finance Foundation’s Monthly Confidence Index of the Equipment Finance Industry (MCI-EFI). These contrasting reports illustrate how uneven the recovery is still likely to be. To paraphrase a common metaphor, there is always a silver lining in every dark cloud, sometimes you just need to look harder to find it. To find the silver lining in the current lease financing market, and make the most of the opportunities it presents, the following principles would seem to be more relevant than ever in the year ahead.

Embrace change. The FASB and IASB are edging closer to a definitive position on new lease accounting standards. One aspect that seems all but certain is the elimination of off-balance sheet treatment for operating leases. Another is the way lessors will account for leases. How these changes will impact demand and the cost of compliance remain to be seen, but even with implementation a few years away, it is likely that those of us who will flourish in the new regime are those who begin making adjustments sooner than later.

Regulatory change is another great unknown. The new Consumer Finance Protection Bureau will begin to clarify the potential application of consumer lending standards to commercial lenders. We will learn more about Equal Credit Opportunity Act changes including small and minority business data capture and reporting requirements. Increased risk retention standards on syndications and securitizations will become clearer. And we will begin to see the broader implications of increased supervision of non-bank financial institutions (and captives) to protect against “systemic risk.” Separately, but related, funding liquidity will slowly ease, but few expect it will return to pre-crisis levels.

Whether you are bank owned, captive or independent, we live in a highly interconnected industry and these changes will affect us all.

Focus on the customer. We are all in the business of creating value for our customers. In a slow growth economy there will be more attention paid to growing share of wallet and holding on to what we have. At EverBank Commercial Finance we measure net promoter score as a means of differentiating customer loyalty from mere “satisfaction.” It will pay to invest in a great customer experience.

In the year ahead, excess cash availability will continue to compete with origination aspirations. Accounting changes will shift the focus to other customer needs such as 100 percent financing, hedges against obsolescence, additional sources of capital, matching use to cash flow, and so on. Public sector financing behaviors will continue to be influenced by accumulated deficits and customers in this space will seek creative solutions from their leasing partners.

Product innovations will likely increase in the face of these and other changes. Companies who focus on finding constructive solutions to customer problems will find ways to grow in any environment.

Leverage your strengths. We all can’t be “all things to all people.” Find a break in the clouds and take advantage of it. In our business, for example, we saw an opportunity to enter the lender finance space, a market we know well and that we are well positioned to serve. Other segments will continue to evolve in the coming year such as cloud computing and alternative energy. Whether you are a low cost provider, a structuring specialist or an industry expert in a particular domain, those who know what they do best and have the discipline to invest in their competencies are more likely to be better served than those who deviate broadly in search of growth and returns. The downside of regulation is bureaucracy. The benefit is consistency and control. Going forward, “how” we approach challenges will be as important as “what” we expect the outcome to be.

Invest in your people. It goes without saying that people are our most important resource, yet many have felt the strains of the economy through increased demands on their time and skills as we have been stretched to do more with less. During the recession our company moved many of our front end people to portfolio servicing positions. As the environment has improved, we have shifted these individuals back to the front line. They are better for the broadened perspective and reenergized in their roles.

In anticipation of ongoing market challenges, we continue to invest in our front line managers through leadership development programs targeted to the unique needs of those charged with translating strategy into action. As opportunities arise in the year ahead, we will be better equipped to capitalize.

Have patience. We may be living in a new normal of slower growth, at least in the near term, and it may take longer to get where each of us wants to be. For example, those of us in the healthcare industry continue to await many of the anticipated benefits of the HITECH Act of 2009. These will likely start to materialize in the coming months. Other stimulus programs will also gradually bear fruit. The regulatory environment continues to unfold. The competitive landscape is shifting. New partners, new relationships, new industries all take time to develop. But like anything worthwhile, time and attention yield the most satisfying results.

As always, success in the year ahead seems to be about executing on fundamentals: embracing change, focusing on the customer, leveraging your strengths, investing in your people and having patience. We just need to look past the clouds.

Disclaimer:

All statements, comments and opinions expressed are solely those of the author and are not the statements, comments or opinions of EverBank or of any of its affiliates, and are subject to change without notice. This is not a solicitation for the purchase or sale of any securities or options on securities, and it does not constitute a recommendation to you or to any specific person of any particular action. EverBank, its officers and employees do not provide investment or other types of advice. All factual information has been obtained from sources the author believed to be reliable, but the accuracy and completeness of the factual information is not guaranteed. Not all investments are right for everyone. You should conduct your own research and/or consult your investment or other advisor before making any investment.