International American Bank

Abstract

This case and its companion, the CIT Group (UVA-QA-0530) can be used as part of a module on the creation of mutual value. If the negotiators go beyond an arms-length approach to their relationship, they can create considerable value by relieving constraints and including additional issues. The cases can be used to illustrate the value of strategic alliances. Excerpt UVA-QA-0531 INTERNATIONAL AMERICAN BANK As Kelly Ebersol put down the phone, she relished the thought that on some days things seemed to go well and that an easy solution to a problem in one of her divisions might have just come her way. The price that her friend Jim Daley at the CIT Group had given her was a little high, but the leases that were being offered fit very nicely into the portfolio she was trying to enhance. As senior vice president, Capital Markets Group of International American Bank (IAB), Ebersol had among her responsibilities the Small Ticket division, a relatively new member of the Capital Markets Group. Small Ticket focused on equipment leases in the range of $ 25,000 to $ 200,000. Unfortunately, the division was struggling—its performance had been lagging since its inception, falling further and further behind plan. Volumes and revenues were below targets and, as a result, the division's base of fixed costs was not being sufficiently covered. Ebersol planned to improve the division's ratio of loan asset to fixed cost by putting more assets on the division's books. Given the time frame (quarterly financial results were due in just one month), there was no way to push the sales people to write more leases. In fact, they seemed to be at capacity already. She thought that the best solution would be to go out into the marketplace and purchase a pool of assets of sufficient quality to make a contribution to the division's bottom line. For the past several months, Ebersol had been discussing with Merriweather Financial, a small lender for small ticket assets, its acquisition by IAB. The unexpected offer from Daley may have just put the Merriweather deal on the back burner. The Equipment Leasing Industry The U.S. equipment leasing industry was enormous and diverse. In 1997, over 30% of the $ 566.2 billion in capital expenditures for productive assets was done through leasing. Assets ranging from airplanes valued in the hundreds of millions of dollars to industrial machinery valued in the low thousands made up the broad spectrum of leased items. Over 2,000 companies provided leasing services to American businesses, including banks, industrial finance companies, and independent companies. Profitability for the leasing industry was stable with an average return on assets of 1.5% and return on equity of 13.9%. In the world economy, the United States was the clear leader in both the supply of funds for leases and the demand for leasing funds, with a 40% share of the global leasing market. . . .