Observations of a Workout Guy - Part 2
In my last post, I compared banks’ special mention and substandard commercial loan portfolios to lawns. If a lawn is not given the appropriate amount of attention, the quality of the lawn will deteriorate and may eventually require the engagement of a landscaping professional.
In Part 2 of my observations, I continue with this analogy and apply it to loans that continue to perform poorly, requiring focused and intensive action. The following is a list of observations that also contains some tips that may help banks improve the quality of their landscape.
1) Communicating, cooperating and paying: A bank can often effectively manage a troubled loan when the borrower is doing at least two of the three. If they are not, then further action is inevitable.
2) “The check is in the mail”: When a borrower breaks promises and is not held to account, the bank is encouraging bad behavior and is simply delaying the inevitable. The bank should at a minimum increase the pressure on the borrower each time a promise is broken.
3) “I’ll file bankruptcy”: Troubled borrowers will occasionally threaten the bank with this statement when they believe the bank is not working with them. My typical response is, “If that is what you want to do, then go ahead and file now. However, bankruptcy is not the paradise your attorney may portray and rarely leads to a positive outcome.”
4) “You don’t want this property on your books”: Delinquent borrowers will often say this. I usually respond that the bank has repossessed assets and foreclosed on properties in the past, and while we would rather not own the collateral, it would not change the bank’s position. A banker’s response to such threats should be strong and unwavering.
5) “One man’s trash is another man’s treasure”: If the Borrower is unable to refinance your loan or cannot sell the collateral, loan sales are an excellent strategy. Distressed debt investors with capital to deploy and significant recovery operations are quite active in the marketplace.