The Need for Independent Analysis On Portfolio Risks

Historically, the leasing community would primarily keep its portfolio reviews in-house to avoid the expense that turning to an outside opinion provider would incur. But as a result of recent economic events, and a growing pressure from management to assure that any shortfalls or potential losses are recognized and resolved prior to any surprises, the once “taboo” thought of allowing a non-employee access to information is becoming more of a necessity. Having the review for potential exposure or losses being performed by the same individuals who are initially setting the residuals is like having students grading their own exams. This is by no means a shot at the equipment personnel within banks and leasing companies; the ones that I deal with are some of the smartest equipment people whom I know. But the main concern is whether the people setting the original residuals are willing to say, “I think I missed this one, we need to take some action,” or are they going to avoid bringing this to the forefront in hopes that the deal will right itself by the time it reaches the end of the lease term. Oftentimes, a potential loss from a lease transaction is a result of an occurrence that could not have been predicted as of the inception of the lease; but even knowing this, the opinion from a party with no “skin in the game” is something that can provide valuable insight and potentially eliminate a potential loss or risk exposure. Because an independent valuation provider has no involvement in the deal other than providing a value, there's less of a chance of the opinion of the valuation provider being swayed by the internal environment of the lessor. Whether there is a potential loss or not, the independent opinion provider will get paid regardless of the outcome of the particular transactions being reviewed.

The Potential for Complacency