Gangs of New York is a 2002 American epic historical drama film directed by Martin Scorsese starring Leonardo DiCaprio, Daniel Day Lewis and Cameron Diaz. The movie, which takes place in the mid-1800s centers around immigrant gangs engaged in a battle to determine which faction will hold sway over the territory.  Now change the date to the 1990s and replace gangs with Asset-based Lenders (ABLs).  Like all turf wars, what started out as many factions whittled down to a few.  People talk about competition today, but do we really think it was any less intense when GE Capital (GECC), CIT, Foothill and Finova were squaring off? Every region of ABL tells its own story, but if we really want to understand the roots of today’s ABL landscape we should all take the time to study the ABL gangs of New York in the 1990s. Many of today’s leaders in ABL developed their style, culture and lending strategy based on which gang they started in. We all must look no further than the firms of 1990s to see how the junior executives of that era created and now run modern-day ABLs.

The story of the 1990s is a big story with many sub-stories such as the one that played out in the non-bank world where many David’s took on the proverbial Goliath known as GECC. The nimble gangs might not have controlled the block, but they were able to hold their own by being creative. The real turf war battle in the 1990s was non-bank ABL moving in on the turf of banks. The banks such as Chemical, Bank of America, Bank Boston, Fleet, Wachovia and LaSalle to name were busy creating ABL into a mainstream banking product. A number of non-banks formed around this same time and started achieving scale. Scale created the exact dynamic that exists in today’s world – pricing versus structure. GECC was the 800-pound gorilla and dominated the non-bank world. Cost of funds was a huge factor and GECC had access to cheapest funds. CIT (including the Fidelcor acquisition – CIT Credit Finance) and Congress were next in the early 90s followed closely by Foothill, Finova and a few others. Norwest of course bought Foothill in ’95 and started a consolidation spree, but for the most part it a was a bunch of hungry upstart non-banks against GECC.

The first few gang wars were between the small non-banks against GECC given its size and cost of funds.  CIT and others did a lot of clubbing to take on GECC’s underwriting capability. Additionally, to beat GECC you needed to be nimble and creative. GECC had scale and the new entrants had to be creative and use speed against the incumbent. GECC also had multiple levels of approval whereas the new entrants like Foothill and Finova did not. Finova was most creative and was one of the first to build an ABL business around verticals. Foothill was making waves and really took off with the Norwest acquisition in ’95 as before that it could not drive scale. Over time, many of ABL groups or gangs, were all either acquired or wiped out through bad deals. Many of the groups that failed were acquired as they were comprised of great teams of smart and scrappy players, where the buyer could grow balance sheets through less regulated subsidiaries. Ironically, this evolution of non-bank ABL in the 1990s spawned the next evolution, which was the dawn of hedge fund lending. The trend was started by Cerberus (able to creatively play in the absence of regulatory oversight) all the way through the financial crisis and further picked up by the dawn of the Business Development Corporation (BDC).  

Modern leadership in New York ABL were derived from the 1990s turf wars. Just look at today’s leaders at Ares, Wingspire, CIT, SLR and UMB, among others, and trace back where they started. They all cut their teeth in the 1990s at either the big non-banks or as a key player at one of the few big banks that became consolidators of the rival ABL factions. While the word gangs certainly has a negative connotation, there is no other way to describe the different cultures that permeated around that time. There is no way that GECC, CIT, Foothill and Finova had close to similar cultures, but all were vying for turf…or market share. Today’s non-bank ABL leaders started off as junior employees at many of these firms. When evaluating where today’s leadership came from you can’t ignore the time period where they learned to lend or different competitive tactics employed at the time. Said differently, blood lines run deep from today’s leaders to the 1990s.

The 1990s started with a multitude of firms and ended with just a few rival firms that got acquired to form the basis of modern-day bank-ABL. GE, CIT, Wells Fargo and Bank of America ended the 1990s as true market leaders. GECC and CIT ended the 1990s as rival gangs in New York. Each generation talks about competition, but the mid-1990s were arguably way more competitive than today given the shear number of groups competing against each other. Some of the noteworthy commercial finance companies include Finova, Freemont, CIT, Rosenthal, Barclays, Shawmut, Fleet, LaSalle, Bank of America, Nations, Transamerica, Heller, GE Capital, Bank of New York, Citibank, Chase, Congress, Foothill, Well Fargo and Norwest. Over time, we all know these rival factions got consolidated and then their consolidators got bought by mostly banks. What emerged from this turf war in the 1990s was the foundation of modern-day bank-ABL and the precursor to modern-day non-bank ABL.

However, for a moment in time, the two biggest gangs in New York were GECC and CIT who to this day, the alumnae that came out of each still harbor feelings towards each other. These gangs competed hard, pushed the envelope and developed some of the best lending talent around. The ABL turf wars of the 1990s led to consolidation and subsequent creation of new gangs i.e., non-bank ABLs to create the modern-day non-bank ABL industry.

At the end of the movie, the skyline changes as modern New York City is built over the next century. Want to know who is running ABL these days? Just look at the leaders in New York. The gangs of New York are back!