Neither a borrower nor a lender be. Sound personal advice, but if you can make 26 percent return on equity, what's the harm? Putting Shakespeare's caution momentarily aside, lending and borrowing have become the underpinnings of the economy-from the Federal Reserve to individual credit card transactions.

The IBM Credit Corporation plays its part in this larger drama and is a resource often overlooked by prospective AS/400 buyers, especially smaller businesses perhaps reluctant to carry a protracted debt load. But below-Prime Rate offerings and packages that can be customized to fit an individual customer's technology needs make the IBM Credit Corporation an attractive alternative to traditional lending sources.

IBM Credit was founded in 1981 and is headquartered in Stamford, Connecticut. From unglamorous beginnings-it was once lodged behind some condominiums next to a car wash-it has grown to administer $10 billion of assets and post earnings of more than $220 million. In the first nine months of 1994, IBM Credit financed $6.9 billion of equipment, software, and services.

At about the time of IBM Credit's founding, a young man in Pittsburgh, John Callies, was working his way up the traditional IBM marketing maze, poised to be promoted to marketing manager. By 1985, he was seeking newer challenges and so joined IBM Credit.

There, he worked his way up the financial maze and is presently the General Manager, End-User Customer Financing. From that office, he crafts the programs and offerings that help customers acquire IBM tech-nology. I asked him what programs midrange customers might expect. He hesitated a moment, then replied, "In the first quarter of 1995, customers can anticipate offerings consistent with IBM's product strategies."

"Huh?" I said, no doubt dazzling him with my ability to grasp corporate disclosure.

Callies laughed and ex-plained that he was not yet at liberty to disclose the specifics of upcoming midrange offerings, but indicated that they would coincide with product announcements planned for February and would support customers moving to a new generation of technology. Translation: IBM would like to have a big first quarter and will be offering customers incentives to purchase systems early in the year.

Supporting product transitions is a key element of the service provided by IBM Credit. Companies both large and small have concerns about getting stuck with antiquated technology. But helping them avoid that trap is sometimes made difficult by the intricacies of the financial world.

Callies recounts a program that IBM Credit was offering to help customers migrate to new technologies. The program was excellent, but it sold poorly largely because the terms and conditions were too complicated to easily explain. By contrast, another package offering 1.9 percent financing sold well because it was simple to grasp. "Just like buying a car," Callies said.

Recognizing the virtue of simplicity, IBM Credit made a shift in 1994. While it continues to lend money at highly competitive rates, it adds value to its offerings by providing flexible conditions and offering simpler packages. And, as always, IBM Credit promises no hidden terms and conditions. For those of us who can no longer read the fine print at the bottom of the contract, this assurance is good. Furthermore, recognizing the diversity of products in today's marketplace, IBM Credit will finance business solutions that include non-IBM equipment.

The IBM Credit Corporation operates as a wholly owned subsidiary. It was formed as a separate unit, explains Callies, because "independence allowed the company to manage itself in a fiscally responsible way." And so it has. On $400 million of seed money, it has returned more than $1 billion to the mother ship.

The business is divided into two lines, supporting clients directly and indirectly. Callies' responsibility is the end-user customer segment. The other half of the business supports distribution channels and remarketeers. Last year, monies loaned were divided roughly 35/65, with distribution channels borrowing the larger share.

Offerings may vary depending on which avenue a customer chooses. Callies explains, "We have a sales force trained in the complexities of financial markets. When dealing directly with customers, we have the ability to develop customized solutions to fit particular needs. We finance anything a customer wishes to buy, from PCs to mainframes. If a large insurance company, for instance, has 100 AS/400s and 500 PCs, and wishes to upgrade certain systems over time, retire others, and add a mainframe, that can be a complex transaction."

When providing financing packages through intermediaries, the offerings tend to be simpler, said Callies, so that they can be easily understood by resellers and do not require extraordinary training to sell.

Customers can obtain direct support from any of IBM Credit's seven national centers, located in Atlanta, Boston, Chicago, Cleveland, Dallas, New York, and San Francisco. An 800 number is available, 1-800-IBM-CALL. Financial specialists, as they say, are standing by. Industry Remarketeers are supported through a separate center in Stamford, Connecticut.

I asked Callies whether he was interested in dealing with the smaller midrange customers or only with industry giants. He assured me that he was indeed interested in all customers, and he invites all inquiries. "Our purpose," he said, "is to help satisfy IBM customers in taking IBM products and to make capital available to meet business needs."

I also asked Callies about the curious earnings spike in the third quarter of 1994. He explained that the 26 percent return on equity benefited from a $70 million litigation settlement with a leasing company named Comdisco. I don't know what the contraction Comdisco stands for, if anything, but if we can extrapolate from recent events, perhaps it stands for commandeering someone else's disco. IBM accused the company of dismantling systems with the intent to distribute individual parts. In one of those comical legal settlements, Comdisco admitted to no wrongdoing, but nonetheless forked over $70 million and promised never, ever to do what it claimed it didn't do again.

In the large financial markets, borrowing money can be a tricky business-as IBM itself found out in 1979. Back then, the country was reeling from the rising inflation of the Carter years. The Federal Reserve's Paul Volcker, unbeknownst to IBM's financial analysts-indeed unbeknownst to anyone outside of the Fed and a few Carter administration officials-was about to make a radical policy shift. In an attempt to slow the economy, Volcker for the first time, targeted the money supply rather than the interest rates, limiting the money available to be loaned by the six thousand member banks of the Federal Reserve System. The effect of that policy was to push the nation into eventual recession. But in the short term, it had the opposite effect, driving interest rates even higher.

At the same time, IBM was preparing to enter the credit market, announcing the largest debt offering ever proposed by an American corporation. The company was floating $1 billion in notes and bonds and was offering a competitive return of nearly 9.5 percent. But the Volcker announcement sent interest rates fluctuating wildly. They quickly jumped well into double digits. Suddenly, there was no reason to lend money to IBM at 9.5 percent; the U.S. Treasury was paying higher rates. About half the IBM offering went unsold, and the brokerage houses that had underwritten it sustained losses of nearly $50 million.

In this instance, IBM has had better luck being a lender than a borrower. Personally, I have no trouble borrowing, it's the paying back that gives me cramps. But for all of you who want to float a loan for an AS/400, IBM Credit makes the paying back part a little less painful. What still bothers me is this: How did Shakespeare know about the Fed?

Victor Rozek has 17 years of experience in the data processing industry, including seven years with IBM in Operations Management and Systems Engineering.

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