Kit Menkin’s Leasing News

Loan losses continue to rise at banks and other institutions, mostly because of faltering telecommunications and cable companies, according to a survey by bank regulators released yesterday.

The total amount of sour loans rose by more than a third from a year earlier, the survey found, but only 11 percent were at United States banks. There were much greater increases at foreign banks and other lenders. Loans to telecommunications and cable companies accounted for about three-quarters of the total increase.

Regulators said they did not see an end in sight to the increase in problem

loans. But analysts and investors said that severe losses would probably occur at just a handful of banks because most lenders had already sold the loans or added to their reserves if they expected losses.

Bank stocks have fallen sharply the last three weeks, after several companies announced that third-quarter results would be worse than expected partly because of problem loans.

J. P. Morgan Chase, the nation's largest corporate lender, set off the decline last month when it said that write-offs and additions to its reserve against potential losses on loans to companies would rise to $1.4 billion in the third quarter, up from $302 million in the second quarter. Other banks that have warned of rising loan losses include the Bank of New York, Comerica and Northern Trust .

Bank stocks have tumbled more than 12 percent since J. P. Morgan's announcement, according to the Philadelphia Stock Exchange/KBW Banks index. Bank stocks rose 4.3 percent yesterday after the regulators released the report.

"We've had a little bit of hysteria here," said Judah Kraushaar, an analyst at Merrill Lynch, referring to the decline in bank shares. In fact, he said, "most banks will have very modest increases in credit costs."

Shares of Bank of America, for example, have fallen 16 percent since J. P. Morgan's announcement. But analysts said they did not expect the bank to report a large increase in loan losses for the quarter. The bank had $3.7 billion in loans outstanding to telecommunications companies at the end of the second quarter, making it one of the larger lenders to the industry, although it has probably sold or hedged some of these loans in recent months.

The bank's chief executive, Kenneth D. Lewis, told investors last month at a conference sponsored by Merrill Lynch that write-offs would be about the same in the third quarter as they were in the second quarter.

The survey, which is called the Shared National Credit Review, is conducted annually by the primary bank regulators: the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. This year, it covered $1.9 trillion in loan commitments, including loans of $20 million or more divided among at least three institutions. Of these loans, the amount of classified loans, on which regulators say banks are likely to have at least some loss, rose $39.4 billion, to $157.1 billion. That represents an increase of 34 percent from last year's report. The review is conducted annually in May and June.

The increase, while steep, was smaller than that reported last year. In the 2001 review, problem loans rose 86 percent, or $54.3 billion.

The three regulators also placed $79 billion in loans in the "special mention" category. These are loans that are "in early stages of deterioration" and bear watching, said David Gibbons, a deputy comptroller for risk in the comptroller's office. The amount of loans in this category increased just 5 percent, after more than doubling the previous year.

"Certainly, the decline in the rate of increase is positive," Mr. Gibbons said. But he said he was not expecting a decline in the number of problem loans for several more months.

"We still have a lot of leverage in the system," he said. The average corporation has debt that is 6.1 times its cash flow, based on an analysis of Federal Reserve data. That is a greater debt burden than corporations carried during the last two recessions, Mr. Gibbons said.

"I don't think anyone could say with confidence that we are at a peak," said Richard Brown, associate director of risk analysis in the division of insurance and research at the F.D.I.C.

Some analysts following bank stocks were encouraged to learn that the rate of growth in problem loans was higher at institutions other than banks, a category that includes hedge funds or special portfolios set up to buy loans. Problem loans increased 68 percent in this group, and 39 percent at foreign banks. In keeping their growth in bad loans at 11 percent, United States banks showed their skill at reducing risk, in part by distributing portions of loans that they make to other institutions.

In addition, "banks have been very proactive about downsizing their loan books, getting borrowers to refinance their debt in the bond market, and extending maturities for the better borrowers," said Steven Wharton, an analyst with Loomis, Sayles & Company.

The problem loans were concentrated in the telecommunications and cable industries, a reflection of the bankruptcies of large companies like WorldCom and Adelphia Communications. Loans to these two industries accounted for about three-quarters of the increase in problem loans this year, the regulators said.

J. P. Morgan said that much of the write-off for the third quarter would be because of troubles in the telecommunications and cable industries. But most large banks have much less exposure in those areas, said Lori Appelbaum, an analyst at Goldman, Sachs.

Telecommunications loans represent 2 percent or less of total loans at most banks, compared with 4 percent of total loans at J. P. Morgan, she said in a recent research report.

Growth in Borrowing Slowed in August

By REUTERS

WASHINGTON, (Reuters) — Growth in household borrowing slowed sharply in August, posting its smallest gain in eight months, according to a Federal Reserve report released today.

The Fed said outstanding consumer credit rose $4.2 billion in August, its smallest gain since a $3.9 billion advance in December 2001. Most of the gain was concentrated in revolving credit, like credit cards.

Only about $200 million of the August gain came from nonrevolving debt, like

loans for cars, boats, mobile homes or education. That was the slowest monthly increase since an outright decline in June 1999.

Revolving credit grew $3.9 billion in August, the Fed said. But even that was a slowing from the $6.4 billion advance the previous month.

July total credit outstanding was revised downward slightly, the Fed said, to a $10 billion gain from the previously reported $10.8 billion gain.

The August gain was much weaker than Wall Street analysts had been expecting and may raise worries about consumer spending ahead.

The small increase in nonrevolving credit surprised analysts, who had been expecting a gain reflecting strong auto sales. Those sales have been helped by the renewal of cheap financing by automakers.

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OneWorld Leasing Co-Op 100 Days of Progress

1. OneWorld Leasing (OWL) expects membership to reach 18-20 by the end of

the year. ( presently 13. editor )

2. OWL has received an indication from MainStreet Cooperative Group that it

will receive a line of credit to fund its operations for the next 12-18

months. This will most likely take effect on January 1, 2003. This credit

facility is being organized by an unnamed cooperative development fund.

Specific amounts, terms and conditions are not being disclosed at this time.

Said line of credit is subject to approval by the OWL's Board of Directors.

If the line is approved, this will provide OWL with critical funding to

achieve its strategic objectives and provide the cooperative with staying

power.

3. OWL is pleased to announce that DHL Worldwide has become its preferred

provider of express mail services. The shipping rates are very competitive.

Summit Global Partners from Houston, TX has become OWL's preferred provider

of insurance products including health, E&O and a full suite of insurance

products.

4. OWL's 4th quarter Board Meeting has been set for Monday October 21st at

9:00 AM. Following the board meeting on the same day, OWL will be holding

an Open House near Chicago, IL where its plans and strategy will be

presented to an audience of leasing industry executives.

Please contact OWL's corporate offices for more information.

Richard Selby

OneWorld Leasing, Inc.

1553 W. Todd Dr., Suite 110

Tempe, Arizona 85283

tel. (480) 203 8350

E-mail: rselby@oneworldleasing.com

URL: www.oneworldleasing.com

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Johnnie Johnson, CLP, from Kuwait

I miss the opportunity to see all of my great friends on a regular basis.

Because I have been out of Kuwait, it was not until yesterday (and after I had written my previous response) that I had a chance to catch up on past copies of Leasing News -- and was displeased to find the "Joke" comment regarding A'ayan. Just to give you further confirmation. A'ayan Leasing & Investment is a well established company here in Kuwait, active in all types of leasing. They are a publicly held company, with equity capital equating to approximately US $65 million. Definitely NOT a joke!

As an additional general comment, please be aware that the Middle East is an area for serious business activity. The players here do business all over the world, and typically in big dollar amounts. (For example, my own company, The International Leasing & Investment Co. (ILIC), has current transactions under consideration in 11 different countries, from Malaysia to the US, and ranging in size from US $500 million downward.) The management teams for financial companies here are typically well educated, experienced, and savvy.

However, it is important to remember that there are still a few "cons" out there as well. I remember in my earlier business days of being approached by someone who had "connections in the Middle East". There was some talk of being friends with a "Prince" or a "Shiek", with lots of money just looking for a home. All I had to do was..... Well, you know the rest of the story.

Let me assure you, that the rules for doing business here are the same as anywhere. While the Middle East is rich with opportunities, there is no "easy money" available. Only legitimate, secure transactions are entertained.

I would offer my personal, informal help to anyone who needs to check out the legitimacy of an "opportunity" in (or from) this part of the world. Or, if more formal advice is needed, and/or if someone needs help to put together a transaction or do business here, ILIC offers Advisory & Consulting services as part of its business activities.

Thanks for your good work with Leasing News, Kit -- it's a great way to keep informed....

Johnnie

W. R. Johnnie Johnson, CLP

Exec. Vice President/Chief Operating Officer

The International Leasing & Investment Co.

P. O. Box 3716, Safat

13038, Kuwait

Phone: 965-244-0368

FAX: 965-246-3190

E-Mail: johnson@ilic.net

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Congratulations to Bette Kerhoulas

I want to add my congratulations to Bette K. as the new

President of UAEL and my admonishment of the "old boys" of the

Association. The more appropriate description of Bette is DYNAMITE!

The timing is perfect for a female President (way late for the first

one however) since the Association needs a strong communicator and

collaborator to bring a broader level of participation.

*************************************************

Paul J. Menzel, CLP

Senior Vice President / General Manager

Leasing Division

SANTA BARBARA BANK & TRUST

P.O. Box 60607

Santa Barbara, CA 93160-0607

1 South Los Carneros Road

Goleta, CA 93117

Dir Ph# (805)560-1650

Email PaulM@sbbt.com

-----

I would like to add my congratulations to Betty Kerhoulas. Best of luck!

Tino Hernandez

tinoh17@worldnet.att.net

---

Congrats Bette!

No matter what the nickname now, I am sure we will all be able to look back

on your term as president and call you "successful". You are a great

example for women in leasing, and UAEL is fortunate to have you at the helm.

Thank you for your dedication to our association.

Nancy A. Geary, CPA, CLP

Partner

Edwin C. Sigel, Ltd., Certified Public Accountants and Portfolio Management

Services

Northbrook, Illinois

ngeary@edwinsigel.com

847-291-1333

__________________________________________________________________

Windows/NET Magazine Results Industry Trends Leasing/Purchasing

ANAHEIM, Calif.----Penton Media Inc.'s Windows & .NET Magazine announced the results of their "Trending and Spending" research conducted to determine IT buying plans, leasing and perceptions of companies using any type of Microsoft operating system.

"We are predicting spending in the IT market to at least hold steady over the coming year, and possibly even increase, based on the results of this research," said Kim Paulsen, publisher of Windows & .NET Magazine. "Respondents said the main triggers for increased IT spending at their company was their companies' profitability, need for new technology or obsolescence of their current system."

"Ninety-three percent of the respondents to the survey are involved in IT purchasing and leasing decisions at their respective companies," Paulsen continued, "so we are confident the results of our research are clear indications of what will be happening in the IT marketplace in the upcoming year."

The majority (75%) also said they plan to upgrade to the next desktop operating system within the next year. Most (97%) use more than one operating system currently in their organization.

When upgrading operating systems, most companies need to buy additional IT products. Respondents indicated that a new operating system prompts the purchase of new desktop systems (49%), server systems (46%), memory (45%) and storage (34%), laptops (32%), server applications (31%) and backup hardware and software (27%).

"Our subscribers indicate their companies' upcoming year will have some bright spots in IT spending," Paulsen said. "Subscribers to Windows & .NET Magazine are at the very heart of the IT industry. Our readers are typically IT managers or system administrators, working in the trenches on their operating system doing upgrades, maintenance and handling day-to-day operations." She continued, "The research is significant given Microsoft's strong position in the enterprise computing market."

Respondents were also asked to identify the top two most-pressing issues they thought were facing IT organizations. Thirty-eight percent thought there were too many projects, 38% thought a lack of capital funding a pressing issue, 30% mentioned keeping pace with technology, 28% lack of time, 27% managing infrastructure, 21% obsolete or outdated equipment, and 21% lack of trained staff.

The results of the survey were unveiled last night at MEC 2002 (Microsoft Exchange Conference) in Anaheim, at an event hosted by Windows & .NET Magazine for their top advertisers and customers. The MEC convention is a showcase for companies with IT products and services. The research was conducted in August 2002 by Up2Right Consulting, and involved 1,052 respondents drawn from Windows & .NET Magazine and e-mail subscribers.

Penton Media (NYSE:PME) is a leading, global business-to-business media company that produces market-focuses magazines, trade shows and conferences and Web sites. Penton's integrated media portfolio serves the following industries: Internet/broadband; information technology; electronics; natural products; food/retail; manufacturing; design/engineering; supply chain; aviation; government/compliance; mechanical systems/construction; and leisure/hospitality.

For more information, visit www.winnetmag.com and www.penton.com.

CONTACT:

Windows & .NET Magazine

Kim Paulsen, 970/613-4928

kpaulsen@winnetmag.com

Danna Varnell, 970/203-2722

_________________________________________________-

Microsoft unveiling new business software to manage array of data

By Associated Press

REDMOND, Wash. (AP) Microsoft Corp. plans to announce a new business software application on Wednesday that allows users to enter and collect data across a variety of platforms. The product, dubbed XDocs, also incorporates word processing, graphics and other capabilities.

The application was developed by Microsoft's Office team, which focuses on business software. Microsoft chief executive Steve Ballmer was scheduled to announce the software at the Gartner Group's Symposium and ITExpo in Orlando, Fla.

The software is designed to allow users to gather and automatically share multiple types of data, said Scott Bishop, a Microsoft Office product manager.

For example, a sales representative returning from a trip could record expenses, new customer contact information, a report to management on the success of the trip and other information through XDocs.

The software is written using the XML standard, or extensible markup language.

Because XML can identify the types of information that are entered, the application can automatically send the expenses data to the company's expense-reporting system, the customer contact information to a customer database and the report to the appropriate person.

Microsoft has not decided whether it will include the application in its Office suite of software or as a separate application. XDocs is expected to be ready in mid-2003.

Microsoft does not have any real competitors yet for such an application, said David Yockelson, director of Stamford, Conn.-based Meta Group. He said the vision for XDocs seems to be evolving but that it is a promising development for Microsoft.

On the Net:

http://www.microsoft.com

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