ABA Banking Journal - October 2009 - (Page 38)
COMMERCIAL LENDING Digging in for a long stretch of workouts You may not be handling the remains of Lehman Brothers, but that doesn’t mean you haven’t got challenges d O’Leary had seen the morning’s The Wall Street Journal last month, when the “Section C” front page blared, “Behind Lehman’s Big Property Struggle.” The article described how Alvarez & Marsal, the turnaround firm overseeing the Lehman bankruptcy, was working feverishly to restructure 900 commercial real estate loans. In all, a portfolio of $16 billion was involved. But troubled commercial real estate credits are not solely the province of the Lehman cleanup crew. Large banks, savings institutions, and community banks all share the pain. The similarities stop there, however. O’Leary, a veteran workout banker, says that while large and small institutions may be playing the same game, they are doing so in different divisions. Big players will go about working out troubled commercial real estate debt in big, often sweeping ways, and nonbanks like Alvarez & Marsal won’t be subject to the oversight of banking regulators. Community banks that have troubled CRE credits (or took commercial real estate collateral in the course of making other types of business loans), have been and will be playing a game of smaller moves, said O’Leary. The former banker, who worked through the worst of the oil patch, commercial real estate, and other debacles of the 1980s and early 1990s in places like Texas, Oklahoma, and New Mexico, said that community bankers face a huge amount of work going forward. Ideally, he said, regulatory forbearance would help banks give their borrowers more time. By Steve Cocheo, executive editor It helped during past crises, he said, and despite pronouncements by at least one senior federal bank regulator that forbearance is not on the table, O’Leary thinks regulators may have little choice this time. “Forbearance is really the key,” said O’Leary. “If you can forebear enough, you can come out OK.” But commercial banks already face the necessity of dealing with problem loans now, and are unable to count on any such relief. So we drew on O’Leary’s experience to illustrate how bankers, especially those new to such troubled times, can attempt to navigate the workout process. Realistically viewing troubled credit Earlier this year, O’Leary, who blogs on credit issues on www.ababj.com’s “Talking Credit,” presented a two-hour ABA Banking Journal Showcase Telephone Workshop, “Portfolio Paramedics: Improving Your Bank’s Workout Function,” which covered both organizing a community bank for workout conditions and techniques for working out individual credits. (CDs of the workshop are available for $150 at http://tinyurl. com/WorkoutCD.) This article draws on that event and on a follow up interview in mid-September. Community banks have an advantage in many troubled commercial real estate deals, O’Leary said, as opposed to residential mortgages that have gone south, in that usually the status of the commercial deal isn’t tied directly to whether the families of the principals involved have a roof over their head. Personal assets Subscribe at www.ababj.com 38 OCTOBER 2009/ABA BANKING JOURNAL
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