When it comes to his professional experience, the asset-based lending business is in essence all James Cannella has ever known. And like many in his field, the young accountant turned field examiner turned ABL industry leaders knew little about the business at the onset of his career. He remembers his early days — the first three years of his career — as an internal auditor with PNC Bank. “Some of my friends were over in this group called secured lending,” he recalls. “Like me, they were internal auditors and had transitioned into this group doing field exams. Whether by luck or by accident, I moved over there too … it was a chance to make a few dollars more and to do something different. That was important at the time. But here it is, 22 years later and I’ve never left the industry.” A bit ironic when one considers that upon graduation from Penn State, Cannella’s professional aspirations included working as an accountant for one of the Big Eight accounting firms. Cannella chuckles, “I guess that sort of dates me, but it was 1984 after all.”
That’s not to imply that Cannella’s world has stood still over the last 26 years. Three years after he launched his career as a field examiner, BankOne acquired PNC’s Ohio-based affiliate Central Trust Company. In time, Cannella moved on to what became First Merit Bank in Akron to start up its ABL operations. It was there when Cannella transitioned from field exams into a new business role. “In those days,” he notes, “we not only found deals, but post closing we actually manage them as well. In some instances, we even underwrote deals with a little bit of help from our credit group.”
In the ensuing years, Cannella “made the rounds,” so to speak, with two separate stints at National City and returns to BankOne, PNC Business Credit and First Merit. The moves afforded Cannella to gain a first-hand understanding of his future competitors’ approaches to the markets as well as their strengths and weaknesses. It was at his most recent “short stop” at First Merit that Cannella caught wind of the startup opportunity at Huntington. In the final days of 2009, Cannella quietly joined the Huntington Bank team, spending his first 75 days laying the groundwork for the new operation. A formal announcement of Cannella’s appointment and the group’s formation followed in early May of this year.
“From my standpoint, this was something I wanted to do for a long time … and suddenly, the opportunity was there at Huntington Bank,” Cannella explains. Aside from the obvious plus of building an ABL operation from the ground up, the Huntington opportunity gave Cannella a chance to put everything he had learned over the past 20 or so years into practice. He says, “Here it was, a $50 billion-plus bank with no asset-based lending presence. It was a great opportunity to use the things I learned over the years … like the best way to do things and some of the pitfalls to avoid.”
Huntington Bank, which hadn’t been in the ABL business since the mid 90s, had suffered its share of the slings and arrows brought on by the most recent economic crisis and in 2009, the future looked grim for the Columbus-based bank. Yet in the fourth quarter of 2009, Cannella was intrigued by the prospect of creating the group and embarked on a two-month interview process with several key Huntington executives. At the heart of his concerns were Huntington’s ongoing viability and the role a new ABL group would play within the bank. “Having come from National City and knowing some of the issues that Huntington was facing, which were similar in nature, my main concern was whether or not Huntington was going to be around for awhile,” Cannella explains.
It was Huntington’s chairman and CEO, Stephen Steinour, who convinced Cannella of the bank’s long-term prospects of survival. Branded as “Huntington’s Hope” in the July 2010 issue of US Banker, Steinour has been credited with aggressively and systematically tackling the once languishing institution’s problems on all fronts. And as evidenced by Huntington’s surprising first-quarter earnings, Steinour and his team delivered. So it’s little surprise that bank’s chief executive (who has a background in asset-based lending) effectively articulated his own view of the ABL product’s significance as a core offering. Cannella’s concerns were assuaged and fitting the ABL unit into the bigger picture, he says, “One of the analysts concerns for Huntington is the bank’s strategy for achieving growth. Having an asset-based lending product isn’t the solution, but it’s a part of it.”
And to that point, the folks at Huntington aren’t fooling around. In June of this year, Cannella’s group announced the hiring of four regional directors with an eye toward adding to its Pittsburgh staff and placing a key person in the Eastern Michigan market. Cannella explains, “Today Huntington has 11 markets primarily throughout the Midwest in Michigan, Indiana, Ohio, Pennsylvania and West Virginia. Right now, we’re totally focused on doing business in Huntington’s footprint, but I think to become successful in this business in the long term, we’ve got to look beyond the footprint — to be more of a national group. Obviously, by being a startup, we have to prove ourselves. So we’re in a ‘walk-before-you-run’ mode for the time being.”
Still, Cannella and his group find themselves walking rather briskly these days. “Right now, we’re probably seeing about a half billion dollars of opportunities in our pipeline. Obviously, our hit rate will be something much lower than that, but it still indicates that there’s a pretty robust asset-based lending market out there. And even in good times, we all know that the ABL product tends to hold up,” he notes.
“Yes, we’re seeing a lot of opportunity but we’re also seeing pricing coming down with a lot more lenders coming in. A year ago, we mostly saw transactions with LIBOR floors in them — today they are gone. But the question to ask is: ‘At what point are banks going to be serious about lending money?’ We’re telling companies that if we can understand the story and we see a three-month turnaround, we’re interested in that opportunity. Some banks may look at it and say six months and some may even say a year, but we’re in that three-month range at this point.
“In terms of size of deals, we’re looking north of $5 million in the traditional sectors — manufacturers, distributors, wholesalers and retailers. We’re seeing a lot of commodities businesses and just being where we are, we see a lot of automotive and we’re very interested in that industry.”
On the buy side of the business, Cannella notes his group has already seen a few opportunities to participate in club deals with three to four other institutions in the lending group. And he notes that Huntington’s ABL group is geared up to lead transactions. “That could happen now,” he says. “It has taken us about six months to establish the right controls and processes in our back office, and we’ve made whatever adjustments we’ve needed to make. Obviously, we have to prove to the market that we’re capable of doing that. But everything is in place.”
Looking beyond Huntington Bank to the asset-based lending product at large, he sees that the days of wound licking and cleaning up balance sheets are, for the most part, over. “The word out there today — not just at Huntington — is that banks have to start lending money. If you think about it, 2009 should have been a golden year for ABLs with a lot of loan production offices opening up … but that didn’t happen because the hardest hit industry was financial services. Now in 2010, everyone seems to have the same goal — growth.”
Does the new Huntington ABL team have what it takes to succeed at a time when growth is the key objective? “Without a doubt,” Cannella says with no hesitation. “Everyone on our team has at least 15 years of experience in asset-based lending with different organizations. I’ve worked to assemble the best people for each of the markets we serve. Each of them have different experiences, each brings a perspective as to what works and what doesn’t work. From those experiences, we’re building a consensus to the best practices of lending. In the end, our goal here is turning a transaction-oriented business into a lending relationship with our customers.”
Stuart P. Papavassiliou is a former senior editor of ABF Journal.