Leases great and small (Microfinancial)
I was reading a book about structured finance lately, which talked about the enormous advances that have been made in leasing. It is possible, through these companies and their special purpose entities to arrange the leasing of an entire factory and its contents, for years, without recording any of it as a liability or, worse, actually spending money and putting it on the balance sheet. In fact, the latest refinement in this area is that the lessor company itself borrows the money that it uses to buy the leased property, thus allowing it to claim the tax benefits of depreciation while the bulk of the lease income can presumably be hidden offshore.
Well, the stock I have to discuss does none of those things. Microfinancial (MFI) is a finance company that deals in leasing of business equipment for fairly small amounts ($5500 on average) for the benefit of their clients who find that leasing is more effective than selling their products. So, in the above example they would be the offshore lease income receiver, although they are actually onshore.
The business has decent return on capital lately, although writeoffs have been taking their toll last year. Their P/E ratio YTD is about 12, and for 2008’s earnings it would have been 7 1/2. The firm pays a dividend of about 7%. As the economy improves and the writeoff situation improves with it, it is likely that the firm can return to its former huge profitability, and the firm has $33 million, which is more than half of its market cap, available on its line of credit to see it through to that happy point. Furthermore, the firm has a price/book ratio of 0.63, meaning that at this price investors can purchase the leases for less than the company paid for them.
There is one more thing I have to address. I don’t like to get political, but I couldn’t let the recent decision by the Supreme Court that corporations have the freedom of speech right to spend unlimited amounts of money out of their own budgets to make campaign advertisements. This is in my view and in the views of many people the largest step, and the last step necessary, to turn the United States into a corporatocracy. Ratings agencies have used their supposed freedom of speech rights to evade responsibility for giving AAA ratings to poisoned CDOs, but this is much more sinister.
It seems to me that it is wholly anathema to freedom of speech that the more money you have, the more speech you get, and the entire line of cases that has established that corporations are entitled to the rights of citizenship has worried me. Since Obama and McCain have both blasted this decision, and it can be attacked from progressive and even Tea-bagging grounds as well, it seems to me that this is not a matter of left versus right, but a matter of left and right and bottom against the top.
It is time for a Constitutional amendment disapproving of granting corporations 14th amendment rights, and there is a more pressing and immediate need for such an amendment than any other possible amendment. I urge all concerned Americans to contact the President and their representatives in Congress (not the Supreme Court itself; they don’t care) calling for measures in response to this.
One proposal I have heard though, short of an amendment, is a rule requiring shareholder approval before any such money is spent. Although they were not clear on the details, it seems to me that this rule is virtually mandated if corporations get free speech rights; after all, corporations are the instruments of their shareholders and so if corporations are making a speech that the shareholders disagree with, then shareholders are effectively forced into making a speech that they disagree with. And if denial of free speech is a major violation of the First Amendment, forcing someone to engage in speech is an equal violation (there are cases on this point).
Accordingly, short of a Constitutional amendment (which is a good idea with or without this decision), the effect of the Court’s could be blunted, in a manner entirely consistent with freedom of speech, by requiring the unanimous approval of all shareholders before the corporation engages in this politicizing. Anything less forces the dissenting shareholders into making an involuntary speech, and that is definitely verboten.
I think I’ll write that suggestion in to Congress and the President as well.
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