In almost every jurisdiction the leasing industry is facing catastrophe, bruised by the economic crisis, which has seen disappearing liquidity, increase in client defaults, eroding asset security, wildly fluctuating interest costs and, in many cases, increased regulatory control. Worse still, despite trillions of dollars worth of intervention by governments and central banks, the markets fail to respond and the merchants of gloom wax eloquent and uncontradicted, predicting further economic decline and hardship. Under such circumstances, lessors are understandably pessimistic, reducing the scale of operations, cutting costs and withdrawing into their shells.

However, it is when things appear most bleak that opportunities begin to emerge, often unnoticed by any but the most alert. While the crisis is certainly the most severe in the memory of any practicing lessor, the coordinated response by world governments and central banks too is unprecedented. This has had the effect of improving liquidity and lowering interest costs. At the same time, the recessionary conditions have resulted in a dramatic fall in the costs of oil and other input commodities as well as in that of rental and wage cost. It is the authors’ belief that these factors augur well for the world economy and would result in an improvement in economic conditions, sooner rather than later. Even more importantly, with most of the industry in a shell, there would be unprecedented opportunities for the astute and able. This article seeks to highlight some of these and to suggest ways of taking advantage of the opportunities.

The present crisis has been gut wrenching and further pain may be expected; the immediate task before management is survival, through conserving liquidity, managing costs, controlling delinquencies, etc.(see “Economic Crisis: Leasing –painted with a broad brush” World Leasing Yearbook, 2009). Once this is ensured, the objective of management would be to grab the Shakespearean “..precious jewel upon its (adversity) head” . The strategies, aimed at taking advantage of opportunity created by market dislocation, would differ from jurisdiction to jurisdiction. However, some of the opportunities/strategies common to most jurisdictions would be as follows.

• Reduced Competition: From the very onset of the crisis, there has been a noticeable reduction in competition on two fronts. In the first instance, the weaker lessors have dropped out of the market. Additionally, banks have been losing their appetite for term finance, the biggest source of competition for lessors, in many markets. Both these developments have created opportunities for client acquisition and development and for yield improvement.
• Client Acquisition: With the competitors downsizing and in a shell, it has been observed that many of the most coveted leasing clients are being underserviced by the industry. This creates an unprecedented opportunity for an astute lessor to create relationships, albeit initially small, with prized clients who hitherto had unshakable relationships with the competition. The crisis has also made even ‘AAA rated’ bank clients amenable to alternate sources of finance and to the argument of ‘matched funding’, the mantra of the leasing industry, making them more open to leasing than ever before. Lessors should draw up target lists of competitors’ prime clients and AAA bank clients for telemarketing and direct selling. Small relationships initiated now would bear abundant fruit in coming years, however, lessors need to remember that their competitors too are receiving such advice; existing portfolios need to be segmented and key clients protected.
• Spread Enhancement: Given the reduced availability of finance and the well publicized problems in the credit markets, lessees have been willing to accept rate increases in return for assured supply of finance, enabling lessors to improve spreads. All indications are that market liquidity would improve and risk premiums reduce in the coming quarters, reducing cost of funds to the lessor, ensuring a double benefit. Lessors should focus on fixed rate leases and actively review their pricing and improve yields through rate increases and fees, without being predatory, while monitoring the liability markets.
• Portfolio Management: In addition to retaining key clients and acquiring new strategic clients as described above, lessors have been advised to tighten documentation, covenants and security provisions and clients have been found to be willing to accept these hitherto unacceptable terms, given the prevailing conditions. Indeed in many cases lessees have actually taken the lessors’ example and enhanced the security of their own credit sales. Both these steps make for improved portfolio quality, post the crisis.
• Human Capital: Morale in the industry has been eroded with layoffs and uncertainty among employees. This creates an opportunity for the astute lessor to head hunt and pick up key staff from the competition, thereby acquiring critical skills and client and market access. At the same time lessors should take pains to ensure staff morale by effective, regular communication. Quality staff and access to clients and markets are critical to the strategy for making the best out of the crisis.
• Mergers and Acquisitions: Asymmetries in the strategic position and the initial response of lessors, to the crisis, has created arbitrage opportunities. Attractive lease portfolios are available at a discount from lessors pressed for liquidity as well as from lessors seeking to reduce head count and therefore anxious to shed segments of their portfolios. Lessors are also less aggressive about competitors seeking to ‘take over ‘existing leases and clients. All of these create opportunities for the savvy lessor, however, it may be remembered that these opportunities will be around for a while and due diligence needs to be applied to ensure that tainted portfolios are not acquired.

The industry is in the midst of an unprecedented crisis that is not of its creation. The difficulties may be expected to continue for some more quarters before things get better. The author’s contention is that lessors can either wait reactively for circumstances to force change painfully or choose to embrace change with a view to positioning themselves and their firms advantageously. This article suggest that the worst-in-our-lifetime crisis also brings with it best-in-our-lifetime opportunities. It seeks to highlight some of the opportunities that have already begun emerging or may be expected and suggests strategies for taking advantage of these. It, however, needs to be borne in mind that there is no ‘one size’ and adjustments need to be made for different markets and individual circumstances.