Asset-based lending: a time-honored product continues to thrive: an interview with Michael D. Sharkey

RMA Journal, The, July-August, 2004 by Jim Nelson

LaSalle Bank, part of ABN AMRO, is based in Chicago, Illinois. Michael Sharkey is president and CEO of LaSalle Business Credit, a 257-employee unit with more than $9 billion of outstanding loan commitments, which targets middle-market corporate manufacturers, retailers, distributors, and service companies in the U.S. and Canada. Venture Finance Plc, U.K., an LBC affiliate, targets customers throughout Europe.

Among LBC's product offerings are asset-based loans ranging from $5 million to $500 million. Ask any lender about asset-based lending and you're likely to hear that it's unlike any other type of lending. You often will hear that customer relationships are relatively meaningless and that collateral is everything. You also will often hear that not many people are doing it right. In talking with Sharkey, you learn that some of that is correct, and some is not.

A 26-year veteran of the banking industry, Sharkey has amassed a good deal of experience in all areas of lending, including asset based. He also currently serves as president of the Commercial Finance Association. The RMA Journal spoke with him in early May to get his take on the ins and outs, as well as the ups and downs, of asset-based lending.

RMAJ: Your banking career began at GE Capital's Chicago office in 1978. You then moved to Manufacturers Hanover and then Standard Chartered Bank (StanChart) Business Credit. You were president of StanChart in 1993 when LaSalle Bank acquired the firm in 1993. Thinking back, what would you say are a few best practices in lending you were able to take from each institution prior to becoming part of LaSalle and ABN AMRO?

MDS: Asset-based lending has been a healthy and vibrant business in the U.S. for many years. It's become much more acceptable for investment-grade corporate facilities to be done as asset-based lending.

Actually, after I graduated from Rutgers, I went to work for U.S. Steel in its management training program. I spent about a week per month in Pittsburgh doing case studies with other trainees from around the U.S. I learned a lot about solving real-life problems. I was a field examiner for GE Capital, where I learned collateral evaluation and monitoring.

I next joined Manufacturers Hanover as a loan officer, which was different from being a field examiner inasmuch as I then learned how to measure a company's viability--where it's going, whether it will be able to service its debt, and finding solutions to its problems and needs. My mentor while becoming a lender and financial analyst was Larry Marsiello (who now is the vice chairman and chief credit officer for CIT Group Inc.), and he helped me learn all the ins and outs of the large corporate financing game. That was back in the days of the HTLTs [highly leveraged transactions] and leveraged buyouts--Manufacturers Hanover was right in the center of all that.

StanChart gave me people-management skills. It's there I learned how to build an organization and manage its personnel and operating issues. I was 30 when I joined StanChart in 1984, and the finance company had $6 million in loan commitments. Today we have $9 billion in loans, so I had a great experience helping an organization grow. The management team members were all in their late 20s, and that team has remained pretty much intact.

RMAJ: Would you say the structure and operation of LaSalle Business Credit differ from the commercial lending units' of other financial institutions? If so, how?

MDS: The simple fact that we've all been together for so many years is a key differentiator. Our use of technology is another distinction: Numerous transactions never have the touch of a human hand. We have a Web-based reporting system, and I believe the technology we use for monthly and daily transactions with our customers surpasses that of any of our peers. So, experienced and knowledgeable people are delivering services in a way that's unmatched by our competitors.

LaSalle Bank's asset-based lending niche developed after its purchase of Exchange Bank of Chicago in 1990. Exchange Bank's management team had come from American National Bank, which, at the time, was owned by Heller Financial. So senior management understands asset-based lending as well as we do. At the time LaSalle bought StanChart in 1993, our combined assets were about $1 billion. Since then, we've acquired Mellon Financial's asset-based group and several offices outside the Northeast from Hong Kong Shanhai Bank. Last year we acquired Bayview Financial. We've grown generically as well as by acquisition, and we've picked up a lot of good lenders along the way amid all the turmoil in the marketplace.

We may be the third- or fourth-largest asset-based lender in the country, but few others, if any, have gotten to the point we're at the same way we have. We have over 850 customers and provide a true middle-market solution for customers who need a $5 million to $50 million deal. Our competitors in the first- and second-place slots may prefer deals that are $100 million or more.