Sale-leaseback transactions have long provided bankers with a way to liberate cash locked in fixed assets, such as the real estate holdings underlying their branch networks.
But with the quest for capital and liquidity intensifying, other types of assets are getting the sale-leaseback treatment. One such asset: technology systems.
Though the concept is not new, there are signs these kinds of deals are becoming more popular, according to International Business Machines Corp.
"The new phenomenon we've seen over the last 18 to 24 months is there are quite a few banks that in the past have not leased and have always bought their equipment and have started coming to us and are starting to lease now," Dan Ransdell, the general manager of client financing for IBM's global financing unit, said in an interview last week.
The Armonk, N.Y., company said that in the first half of this year the dollar value of its equipment leasing and lending deals with financial services companies increased 31% from a year earlier, to $1 billion. That includes lease-buyback deals, whose dollar value tripled. A quarter of the unit's clients are banking companies.
Mr. Ransdell said that bankers are under more pressure to increase the cash on their books, and that the ongoing economic problems in the financial industry are making this kind of deal increasingly attractive.
"More and more banks are looking at leasing as a result of the losses they're incurring," he said. "They start looking at, do they have assets on their books that could be shed?"
In some deals, the hardware does not move — only its ownership changes — and the sale generates cash for the banking company without any technology overhaul or downtime, Mr. Ransdell said. In other cases, a company sells its systems to IBM during an upgrade and leases new machines.
IBM said that in recent deals, one of the world's top 5 banking companies put $200 million of cash on its books with a sale-leaseback arrangement. The technology company is working on a deal with another top 5 banking company that could raise as much as $400 million.
Mr. Ransdell said that in the first case, the banking company (which he would not name) previously owned IBM hardware, and though its technology team was initially wary of moving to a sale-leaseback arrangement, its chief financial officer was enthusiastic about being able to generate cash quickly.
Rodney Nelsestuen, a research director at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said that for bankers, "the liquid portion of their balance sheet is something they need to preserve, and leasing can help do that."
He also said that bankers are turning to these deals only after exhausting easier ways to boost their balance sheets.
"We've seen them doing a lot of things before they get to the equipment side of things," Mr. Nelsestuen said. "If you're in trouble, why don't you sell a portfolio? Why don't you sell off a business unit? That's the kind of thing that makes real differences to the parent company."
The money generated by these deals, even hundreds of millions of dollars, is "not a lot of money, necessarily, but it still counts," he said, and it may be particularly meaningful to a chief information officer whose budget is being slashed or who reports to the CFO instead of the chief executive officer.
Several major banking companies, including JPMorgan Chase & Co., Citigroup Inc., HSBC Holdings PLC, Bank of America Corp., Deutsche Bank AG, Wachovia Corp., and U.S. Bancorp, either would not discuss their views on technology leasing or did not make executives available for interviews.
Christine Barry, a research director at Aite Group LLC, said the trend IBM described fits into the trend toward outsourcing in general.
"Fewer and fewer banks are buying technology," she said. When they outsource, "they can save significant amounts of money," because they can cut the staff they would need to keep things running themselves.
The trend toward leasing could be a middle ground for large banking companies that are accustomed to owning technology but are unwilling to cut staff and outsource outright, Ms. Barry said. "There are some banks that feel very strongly about having the technology on-premise."
