When a consortium of road construction companies came to Boone County National Bank asking to refinance a short-term equipment loan, bank officials had a problem.
The consortium wanted to stretch out the repayments on the equipment while seeking new short-term capital for growth. But it was already up against the holding company's legal lending limit.
Anxious not to lose the customer to another company, Boone County, of Columbia, Mo., turned to St. Louis-based Boatmen's Bancshares, its correspondent bank, which only a year ago began promoting its new equipment financing operation on a correspondent basis.
"They were real straightforward in dealing with us - they were prompt and very responsive," said Michael Stroupe, executive vice president of Boone County, which already had correspondent ties to Boatmen's. "Rather than coming in and appearing that they were taking over a relationship, they were helping us maintain a relationship."
The equipment-leasing deal with Boone County is one of several Boatmen's has arranged through its correspondent banks since launching its leasing department two years ago. Already, the company has booked a "substantial" dollar volume through such referrals, with three or four more such deals pending, said Jim Kratzer, vice president for correspondent banking at Boatmen's.
But equipment leasing and financing has generally not proven very profitable for most banks, particularly on a correspondent basis. While a number of other regional banks maintain leasing subsidiaries, many more have fled the business and others are reluctant to even enter.
In fact, most of the major players in the field are nonbank finance companies, such as Caterpillar, General Electric, CIT, and Westinghouse.
"If Boatmen's is developing that as a product for their correspondents, that may be something worthwhile," said Petri Robbins, who heads correspondent banking for Barnett Banks Inc., Jacksonville, Fla. "But I don't know if they've clicked on to something that's going to be a great product for everyone to jump in on or not."
Like Barnett, some of the large banks that have leasing departments or subsidiaries have tried to cross-sell the financing to correspondent customers. But since many financing arrangements can be handled just as easily through term loans as through leases, community banks would prefer to book a regular loan to use up excess liquidity.
"The fact that you can offer a lease as opposed to a commercial loan makes the transaction sound exotic," said Helge Christensen, president and chief executive of the Bankers Bank in Wisconsin. "But if a lease is not much more to the borrower than a method of 100% financing, whether you use a lease or a loan is not a whole lot different."