ABA Banking Journal - July 2008 - (Page 40)

COVER STORY WORKOUT continued from page 32 play hardball from the beginning. But where that wasn’t the case, “I was ready to work with the customer, that is, I was able to work with him, rather than just work him out,” says O’Leary. It isn’t unusual for additional funds to be part of a deal. “New money is almost always part of doing something curative,” says O’Leary. “There’s a little speech I used to use” at the beginning of most workouts, he says. “I used to say, ‘Look, we can do this two ways. We can do it my way. Or we can do it your way. But, ultimately, we are going to do it my way, and going my way, we are going to get there. Now, let’s start there, because it will be easier on you’.” O’Leary did have his share of confrontations. “I always got a certain satisfaction out of verbally roughing up a guy who was giving me a hard time. If I gave him reasonable alternatives, and was really working with him, and he spit back in my eye, well, it was Katie bar the door,” O’Leary recalls. At such times of noncooperation, he says, yes, he had to play hardball. Give and take can work wonders, too. At one bank, for instance, O’Leary had to handle a director of the bank itself who hit trouble in the oil business. On top of it, he was a fraternity brother of the bank’s CEO. “He was always a gentleman to me,” says O’Leary. “But initially he was not terribly cooperative, because he wasn’t used to not having things his way.” The director came from a rich, proud family. “And one day,” says O’Leary, “I made a concession to him that earned me his trust and support, and made the rest of the workout relationship over the next two or three years pleasant, even though it was still a workout.” The concession was this: The director was a member of an exclusive country club. To have to sell his membership— worth about half what he’d paid for it at the time—would have meant a terrible loss of social standing among his peers. “He asked me if I would not foreclose on that stock, and I told him I would do my very best, unless the president of the bank himself ordered me to,” says O’Leary. “He never lost his stock, so he could still go to the country club and that meant more to him than anything else I could have done. It cost me nothing, so why wouldn’t I do that if it made him my friend?” Things weren’t always so smooth. Adds O’Leary: “I always enjoyed working in the environment where I had some latitude to play good cop, if I had the opportunity to play it.” Q. A. Can we sell off our bad loans, and skip the workout stage altogether? Yes, this is possible. About a year ago ABA Banking Journal ran an article about selling troubled loans, which you can find in the August 2007 Digital Magazine at the following address: Nxtbook.com/nxtbooks/ sb/ababj0807/index.php?startid=18 However, there are several points to be aware of. Buyers of loans make their money by purchasing at so much on the dollar, and then working the credit to maximize recovery. So, “the discounts make it very unattractive,” says Nick Ketcha of FinPro. The bank has to balance the costs of carrying a troubled credit against the discounts. In addition, the bank must determine what accounting and related capital considerations will apply. With the workout talent pool so small, should we be looking for outside talent, sort of a “workout consultant”? It’s possible to find outside help. Ex-regulator Nick Ketcha says you need “people who know when to give a little, when to take a little,” not professional “legbreakers.” Allied to this is the need for strong loan review. The bank that has a strong handle on its portfolio stands the best chance of making workout work, because it will be honest about what it’s got, and can deal with the cleanup better, says Ketcha. If a bank lacks the talent internally, it can hire loan-review help, he says; often, retired examiners are doing this today. Banks that aren’t taking this cold, hard look at portfolios have been having examiners do it for them, according to talks with bankers and regulatory experts. That’s not so good. Q. A. “He never lost his stock, so he could still go to the country club and that meant more to him than anything else I could have done. It cost me nothing, so why wouldn’t I do that if it made him my friend?” Q. A. 40 JULY 2008/ABA BANKING JOURNAL ABA Banking Journal has run several articles about e-mail archiving and related issues over the last year. Is workout an example of the need to carefully archive all electronic communications? Put down your Blackberry and push away from your keyboard. “You have to slow down to speed Subscribe at www.ababj.com http://www.nxtbook.com/nxtbooks/sb/ababj0807/index.php?startid=18 http://www.nxtbook.com/nxtbooks/sb/ababj0807/index.php?startid=18 http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - July 2008

ABA Banking Journal - July 2008 Contents Editor’s Column Searching for New Paradigms at BIS Snapshot: C&I Asset Quality 100th Anniversary: Then & Now BofA "Event Concept" Wins Awards, and Customers ABA Resources ABA Chairman’s Position M&A: Beat Today's Market Blues Pass the Aspirin Cover Story: Workout Time Correspondent Banking: No Longer Just a Handshake Business Getting IT Right By Thinking It Through Webnotes Are You "Red Flag" Ready? Mailbox Banker’s Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - July 2008

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