2008 10 03 verhelle presentation at leaseurope
DESCRIPTION
ELFA Chairman (WIlliam H. Verhelle) presentation at 2008 LeasEurope in Madrid, Spain.TRANSCRIPT
Market UpdateU.S. Credit Crisis
Presented by:
Bill Verhelle, Chairman
Equipment Leasing and Finance Association
Frederick E. Wolfert William H. Verhelle Senior Advisor CEO
Aquiline Capital Partners, LLC First American Equipment Finance
The Acquired The Acquirers
Credit market dislocation of historic proportions
Savings & loan crisis
Leveraged lending &
commercial real estate
crisis
Technology bubble and 9-11
attack
Ongoing sub-prime
crisis
Historical average (~ 6%)
Note: GDP data is inflation adjustedSource: Bureau of Economic Analysis
GDP growth
Russian crisis
Several years of strong economic growth
Note: GDP data is inflation adjustedSource: Bureau of Economic Analysis
GDP Growth
2004 – 2008 trend line
The Storm has hit… “Rolling Thunder”
Home prices fallingHome prices falling
Sub-prime securitization crisis
Sub-prime securitization crisis
Loss of confidence in rating agencies
Loss of confidence in rating agencies
Other asset classes affected
Other asset classes affected
Frozen credit marketsFrozen credit markets
Historic sub-prime related write-downs
($ in billions)
Source: Reuters, as of 2008-09-11
Reduction of global lending capacity
•Global write-downs: $588 billion equity
•Assumed leverage: 11.5x
•Estimated global lendingcapacity removed: $588 x 11.5 = $6.7 trillion
The impact on capacity is bigger than the headline numbersThe impact on capacity is bigger than the headline numbers
U.S. banks – quarterly delinquency
Source: Federal Reserve Board
U.S. banks – quarterly charge offs
Source: Federal Reserve Board
U.S. Banks: Charge-offs, Reserves and Delinquencies
Source: Federal Reserve
U.S. equipment finance past due receivables
Source: MLFI-25
U.S. equipment finance losses (charge-offs) as a % of net receivables
Source: MLFI-25
Credit approval ratios as % of all applications
Source: MLFI-25
Equipment finance originations remain steady
(in billions)
Source: MLFI-25
U.S. banks tighten lending standards
Net % of Bank Respondents Tightening Standards for C&I Lending
Net % of Bank Respondents Tightening Standards for C&I Lending
Net % of Bank Respondents Increasing Spreads of Loan Rates Over Banks’ Costs of Funds
Net % of Bank Respondents Increasing Spreads of Loan Rates Over Banks’ Costs of Funds
Source: Federal Reserve
The equipment leasing and finance industry is capital constrained…
…Creating both opportunities and challenges.…Creating both opportunities and challenges.
Lower
Higher
Depository Structured Vehicle
Capital MarketsReliant
Existing Credit and
Capital Exposure
Years of tightening U.S. equipment finance spreads
6.68% 6.80%7.40%
8.30%
Average pre-tax yield
Average pre-tax spread
Average cost of funds
8.18%
Source: 2008 ELFA Survey of Equipment Finance Activity
“Back to the future?”
Sovereign wealth fundsSovereign
wealth funds
The return of the “Dinosaurs”
Institutional Investors
Institutional Investors
DepositorsDepositors
Pension fundsPension funds
Foreign pension funds
Foreign pension funds
Direct originators
with placement capabilities
Direct originators
with placement capabilities
Commercial Finance
Borrowers
Commercial Finance
Borrowers
BanksBanks
SIVsSIVs
Asset backed
securities
Asset backed
securitiesConduitsConduits
Warehouse Lines
Warehouse Lines
The “Engineered Finance” Era
Commercial Finance
Borrowers
Commercial Finance
Borrowers
Institutional Investors
Institutional Investors
DepositorsDepositors
Pension fundsPension funds
U.S. credit markets summary
The effects of the credit market turmoil may be long-lasting
Commercial finance companies with liquidity should be able to take advantage of an attractive spread environment
Portfolios containing marginal credits will become a greater concern as the economy moves toward recession
Financing challenges exist for commercial finance companies that rely on the capital markets, including the securitization market
Catalysts for a Recovery — A broad recovery in the credit markets is unlikely until the residential real estate market stabilizes
Additional challenges in the U.S. equipment finance marketplace
Margin compression (seeing improvement in 2008)
Changing accounting standards; off-balance sheet treatment and expected changes
Effects of regulatory response to the mortgage crisis
Uncertainty regarding future U.S. tax policy
Bill Verhelle, Chairman
Equipment Leasing and Finance Association