For banks involved in the equipment leasing and asset finance business, regulatory agency requirements stemming from the “Great Recession” have forced banks to assign higher levels of loss to equipment-based defaults and thus allocate a higher level of risk capital to these transactions. The impact of this on levels of risk capital assigned today has created a sense of urgency to improve validation methods, says Andrew G. Mesches, a director of The Alta Group who has more than 30 years experience in commercial lending and bank-owned equipment finance.
 
Mesches will discuss the roots of the problem, specific examples, and potential solutions today, April 21, during the Bank Best Practices Roundtable preceding the Equipment Leasing & Finance Association’s (ELFA) Annual Funding Conference in Chicago. Alta CEO John C. Deane also will participate in the session.
 
“During the credit recession, the extent of losses exceeded expectations and raised questions regarding the validity of loss-given defaults (LGDs) reported by banks, based on the underlying collateral. Regulatory agencies felt that the specific bank did not have enough historical information with the level of detail needed to differentiate varying levels of loss with different collateral – i.e. they didn’t have enough ‘bad’ deals within any one category in order to establish parameters around it. Therefore, banks were required to reduce their support on collateral and assign higher levels of loss. What this also meant was that banks had to allocate a higher level of risk capital to those transactions,” Mesches explains.
 
“At the Roundtable, we will discuss the idea of resolving the problem by validating equipment values on an industry-wide basis versus within each bank,” he adds. “This would enable banks to assign objective, meaningful values to equipment, which would create the basis for more realistic, lower LGDs and would lower the amount of needed risk capital.”
 
Also during the ELFA event today, Bruce Kropschot of Alta will discuss the impact of mergers and acquisitions on independent leasing companies at the Independent Best Practices Roundtable.  His presentation will cover current M&A market conditions, motivations of buyers and sellers, recent M&A activity, and how to make a leasing company more valuable to potential acquirers.  Kropschot is senior managing director and merger and acquisition advisory practice leader for Alta with nearly 30 years of experience providing M&A advisory services to buyers and sellers, arranging debt and equity for clients, performing leasing company valuations, and providing acquisition due diligence support.