Note the upcoming webinar on cross selling:

“Is Cross-selling the Secret Sauce?” with Charles Wendel on November 3, 2014
The live webinar begins at 11 AM Eastern. To sign up go to mzbierlyconsulting.webex.com or call Susan Lersch at 610-296-4771. Space is limited to the first 100 participants. (If you can’t make the live webinar, register now and we’ll send you the link to the recorded versions.)

Last week I attended and spoke at the annual convention of the Equipment Leasing and Finance Association. While not quite record attendance, attendance was significantly higher than just a few years ago, in large part fueled by lessors from bank owned equipment finance companies. The spirit of the group seemed high, as the performance of equipment groups within banks demonstrates the earnings power of these specialty groups. Not for the first time, I thought about the strengths of these groups and the value they bring to banks.

* Sales drive them. At the beginning of each year leasing staff must generate sales orders to build their personal income; no new sales, no or little income. Leasing groups, while ensuring that they provide quality customer service, operate as sales organizations. Typically, bankers are NOT salespeople. They tend to be customer service oriented, almost to a fault. Equipment finance personnel know that the customer needs to be fully satisfied, but they also know they need to sell.

* They provide a differentiated product. Too often I have heard small business or middle market bankers say, “We all sell the same thing.” They mean that a loan is a loan and a deposit is a deposit, basically generic products. Equipment finance providers do not see themselves as vanilla product pushers and neither should bankers. Leasing companies specialize in everything from aircraft to taxi medallions to boats. They provide a level of industry, product, and/or structuring knowledge that differentiates them from other players and demonstrates value to the end customer.

* They expect to get paid for the value they offer. Many C&I lenders operate in a world of RFPs in which the low bidder wins. Frankly, this is a losing long-term strategy in which banks cut their margins to the point of pain. Of course equipment finance margins have also eroded, given the increased entrance of new competitors into the business. Nonetheless, typically equipment finance margins exceed C&I loans and lessors focus on fees to boost the yield. Equipment finance bankers often get paid in part based on the yields of the deals they generate, focusing them on booking deals that are as profitable as possible. Commercial bankers often bemoan the competitiveness of pricing but accept it as a fait accompli.

* They exude energy. I have often thought about an experience of about ten years ago. I met with a commercial finance client team late in the evening for a dinner. One sales person was literally bouncing up and down in his chair talking excitedly about how much money he was going to make that year and how he had blown through his goals. A banker would never do that: first, most are not that sales oriented and, second, the upside banks provide is usually not large enough for bankers to get excited about. The bonus paid to a great bank performer is often not that much more than that paid to a mediocre banker. That is not true of leasing groups where pay for performance is a standard.

* They fire bad performers. Banks are lumbered by too many mediocre people who are meant to sell but either lack the skills or DNA to do so. For reasons that include inertias, laziness, misplaced loyalty, paternalism and other factors I cannot understand banks put up with sales people who cannot sell. These bankers provide lots of excuses…too much paperwork, too many regulatory requirements, too many compliance requirements, bad internal processes, too many competitors…the list goes on and on. But, they fail to perform. In many cases bank managers are simply too patient and too nice, hoping the banker will perform despite all evidence to the contrary.

Leasing executives are also nice, (mostly), but they operate as business people who expect a certain level of performance. They set clear performance expectations and if those expectations are not met, the implications are clear. Too often banks operate with a mix of objective and subjective metrics that result in a lack of clarity. Additionally, many banks fail to accurately evaluate their bankers, overgrading them and making the removal and upgrading process more difficult to achieve because of an insufficient paper trail. The leasing execs I know tend to be straight shooters in evaluating staff.

* They build a distinct culture. Leasing execs work hard to create a coherent and unified culture that is distinct to their organization. Groups like Signature Financial, First American Equipment Finance, 1st Source, and many others have developed a distinct culture that is unique to their particular organization. In contrast banks often operate with cultures that permit civil wars within the bank rather than a unified approach aimed at defeating the external competitor.

Why don’t banks take greater advantage of the capabilities and experience that their bank-owned equipment finance companies offer?

• In some instances they believe that the leasing group is too different from the “core” bank to provide best practices. They are wrong about this.
• In other cases senior management really does not know what the leasing group is up to or how they do what they do. They are pleased with the quality numbers the group generates, but they fail to understand the process and culture involved in doing so.
• The crisis in banking appears to be over, as provisions reverse and the bottom line is steady or growing slowly. So why try to graft a leasing approach onto the rest of the bank? (In our view the crisis in banking is greater than ever, but many bankers simply do not know how the ground is shifting under their feet. They will, but for many when they do it will be too late. Leasing may provide one path to long-term survival.)
• Traditional commercial bankers feel defensive and perhaps threatened by the leasing bankers.

Ultimately, we think the sales emphasis and positive culture of equipment finance groups will permeate the “core” bank. As this occurs, productivity will increase, the commercial bank will implement better targeting, consistency, and discipline, and the commercial lending group will never be the same again.