ABA Banking Journal - November 2008 - (Page 8)

After the crisis briefing changes.” Ely predicts that 2009, when Congress is expected to consider the financial regulatory system, will turn out to be the most significant legislative year for banking since the 1930s. What bankers have been watching in recent weeks “is shaping up to be worse than the S&L crisis,” says Nicholas J. Ketcha, Jr., principal now at consultancy FinPro, Inc., Liberty Corner, N.J., and previously director of the N.J. Division of Banks, and FDIC Director of Supervision. “This is going to be the biggest downturn in the economy in a while,” continues Ketcha, and comes down to a liquidity-eroding crisis of confidence. “This is a matter of people going where they thought they would find money,” for what have you, says a longtime observer of the credit scene. Homeownership is one example: “We’ve got the notion in the U.S. that everyone needs to own a home,” says the veteran, preferring not to be quoted by name. While such societal attitudes play a part, so do some structural issues. The panorama of companies that lend money in modern America is wide, but one factor used to be fairly common among the players: the lending officer who found a loan evaluated the loan, and, after other officers or committees passed on it, lived with the loan. Increasingly, those roles have been busted apart, both internally and externally. Think of internal “silos.” Think of securitization. Think of loan brokers versus loan officers. “That was a watershed event,” observes Edward T. O’Leary, banking consultant and former banker, and ABA Banking Journal’s “Talking Credit” blogmaster. “The guys who are making the deals today are not the guys who fully Banking understand the deals.” This evolution occurred for all kinds of reasons, including the metamorphosis of many banks into sales-oriented organizations. O’Leary’s point is that once the roles of hunter and analyst break apart, there is a tendency in good times not to listen too closely to the analyst. The flip side has been that with increasing specialization, lending organizations lost internal cross-pollination. “The best loan review guys,” for instance, says O’Leary, with over 40 years in credit experience, “are the guys who have actually loaned money.” In many organizations the front-end lender isn’t performing credit judgment, says Barksdale, but is simply gathering items on a checklist that will be bundled for backshop troops to make sense of. 2.0 How’d we get here? The blame game is something that Congress will spend much time on, in the months and years ahead. It could be argued that we all own a piece of something that became inevitable; an economy that was 70% driven by consumer spending coupled with a fair amount of irresponsible borrowing and lending, with people often living beyond their means, was headed for trouble. What’s your lender up to? Another factor is lack of experience. While most community banks, even those with significant exposure to commercial real estate lending, don’t appear to be in serious trouble at this point, banking has seen a shrinkage in its active Snapshot The few, the proud, the banks that can raise capital A such as notable losses arising from construction and devellthough capital adequacy remained the central focus of opment loans, that need to fill a small capital hole, often the banking industry, the pace of underwritten public achieved through private placements. He said those compaofferings nearly fell off a cliff in the third quarter. nies can no longer access the trust-preferred market, and Banks and thrifts faced a hostile environment in which to their capital raises are not large enough to attract major pribring an issue to market. With the trust-preferred securities vate equity firms. market closed to all but a few large institutions and the debt “I think that’s where you might see smaller common equimarkets in deep turmoil, most banks and thrifts issued prety deals being done. And we’re seeing more of those every ferred and common stock to raise capital. day,” Killian told SNL. Thomas Killian, a principal at Sandler O’Neill & Partners —Nathan Stovall, senior industry editor nstovall@snl.com LP, said that three different types of banks and thrifts can tap the markets in this environment. The first Capital raised by banks and thrifts, by quarter type is a company with relatively strong 45.0 Common stock Preferred stock Trust-preferred stock credit quality that looks to raise oppor40.0 tunistic capital, which Killian said would 35.0 enjoy the best reception in the market. 30.0 Companies with credit quality chal25.0 lenges arising from their geographic loca- $B 20.0 tion or particular types of lending are the 15.0 second possible issuer in this market, Kil10.0 lian said. 5.0 Killian said the other companies raising 0.0 capital are small banks that might have Q1 2008 Q2 2008 Q3 2008 Q4 2008 problems with a single loan portfolio, 8 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.finpronj.com http://www.ababj.com//component/option,com_myblog/category,Talking Credit/Itemid,140/ http://www.ababj.com//component/option,com_myblog/category,Talking Credit/Itemid,140/ http://www.ababj.com//component/option,com_myblog/category,Talking Credit/Itemid,140/ http://www.ababj.com

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

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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