Given some of the riskily aggressive leases that the company has written on IBM mainframes in recent years, it is ironic that IBM Credit Corp should have seen its first-ever drop in profits in 1987, announced Monday, as a result of non-computer financing transactions. IBM Credit Corp reported net profit for 1987 down 27% at $85.8m, but blamed the decline in its profits on an $18.5m pre-tax write-off that it was forced to take on an off-shore drilling rig financing deal that went wrong. The seven-year-old unit financed $5,000m of its parent company’s computer business last year, but has also diversified into writing leases on aircraft and electric generators. It also saw administrative overheads rise 25% last year – and there are still worries that some of those incautious computer leases written two and three years ago may come home to roost. According to the Wall Street Journal, Annex Research analyst Bob Djurdjevic has been saying that when some of those leases start to mature next year, the company will be left with used computers that it will not be able to dispose of at a profit. IBM Credit disputes this, saying that it would have to start writing down the value of computers now that were unlikely to make their book value, and that no such write-downs are being made, so all is well. Under new accounting rules, IBM will also have to consolidate IBM Credit with its own figures this year, rather than handling the unit’s borrowings off balance sheet. There will be no effect on the parent’s profits, which already consolidate those of IBM credit, but its debt-to equity ratio will rise.
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