ABA Banking Journal - August 2007 - (Page 22)

Community Banking $8 million. That sale would accomplish the regulatory purpose, but it means that $4.8 million “is gone forever, a real loss.” Whatever the price, and loss on sale, the bank has to weigh that against many factors both financial and nonfinancial. Now, suppose the bank charges off the $8 million against the allowance for loan and lease losses. Remember that some loans do wind up being recovered in part after being charged off, says Peacock. So the bank may not have to bid farewell to as much as in a sale, especially if time is the main ingredient needed to heal things. And there may be tax advantages, as well. To do this of course, the bank must have a healthy reserve, and must have enough capital to maintain acceptable ratios after the charge is taken. 4. Weigh capability—assess your team’s talents and workload. Workouts can be very costly in terms of time. Once the bank decides that, the time has come to sell a loan or pool of loans, management may want to obtain professional guidance regarding the regulatory and accounting treatment of a so-called “sale.” Pricing decisions “Distressed debt” covers an awful lot of ground, from moderately troubled to outright stinkers, and buyers price based on many factors. “Prices could range from pennies on the dollar, up to par,” depending on what the buyer sees before them, says Gulf National’s Joel Daste. Loan sale advisors play a significant part in pricing. The less com- modity-like an asset is, the more important their role, and the more they may be able to do for a seller. A rough rule of thumb, according to Steve Cohen, managing director at Nautilus Capital LLC, Mauldin, S.C., is a 15 cents on the dollar haircut. “We can take on virtually any loan, at some price,” says Mike Mulder, president and CEO of PrinsBank, Prinsburg, Minn., which manages troubled debt acquired from other lenders, through a partnership between bank management members and CarVal Investors. (See the digital edition at www.ababj.com for “Community banks find success squeezing others’ lemons into lemonade.”) CarVal’s Lena Motz, vice-president, manages investment partner relationships, including that with PrinsBank’s 22 AUGUST 2007/ABA BANKING JOURNAL www.ababj.com/subscribe.html http://www.nautiluscapital.com http://www.prinsbank.com http://www.carvalinvestors.com http://www.ababj.com http://monarchpg.com http://monarchpg.com http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - August 2007

Contents Editor's Column The Unbankers Snapshot: Do Share Repurchases Signal More M&A Activity Sleight of Mind Goals Behind Proposed ABA/ACB Merger ABA Resources ABA Chairman's Position Should You Sell Those Nonperformers Pass the Aspirin Branch Design - Evoking a Sense of Place Two Banks Take the LEED Move Over, Buddy Service Feature: Bankers' Banks Directory Websites: What's State of the Art for Banks? Citi Mobile to Go Strong with iPhone? Date First, Marry Later Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - August 2007

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