Capital Markets

Latest Victim of Malaise: Equipment Leasing

Leasing-industry association shows new-business volume falling 9.1 percent in October, year-to-year.
Stephen TaubNovember 25, 2008

Equipment leasing is another victim of the economic tailspin, with overall new leasing business volume for October falling 9.1 percent year-to-year.

The report of the Monthly Leasing and Finance Index (MLFI-25) from the Equipment Leasing and Finance Association also showed a 7.7-percent decline in October compared to September. Cumulative year-to-date new business volume, on the other hand, still shows an increase of 0.9-percent over 2007, according to the Index, a measure of volume of commercial equipment financed in the U.S.

The ELFA asserts that the MLFI-25, measuring economic activity for the $650- billion equipment finance sector, complements other economic indices, including the monthly durable-goods report issued by the U.S. Department of Commerce (reflecting new orders for manufactured durable goods), and the Institute for Supply Management Index, which reflects economic activity in the manufacturing sector.

The ELFA asserts that the reports, taken together, provide a complete picture of the status of productive assets n the U.S. economy: equipment produced, acquired, and financed.

According to the October data as reported by the 25 banks, finance companies, and manufacturers that comprise the MLFI-25, receivables in the less-than-30-days category — a measure of non-delinquent accounts — were 96.6 percent, as accounts more than 30 days delinquent increased to 3.4 percent, the highest level since August 2007.

Charge-offs increased to 1.01 percent, compared to 0.86-percent in September, another sign of trouble.

According to the report, credit approvals of new transactions declined to the lowest level in two years (72.5 percent), with nearly half of participant companies reporting that fewer transactions were being submitted for approval and underwriting standards tightening. This development does not portend well for the overall economy.

Meanwhile, total headcount for equipment finance companies remained relatively flat in the September-October period.

“Members are reporting that a combination of enhanced underwriting standards, declining demand and increased cost of funds are resulting in fewer transactions being funded,” said ELFA president Kenneth E. Bentsen Jr.