Wednesday, November 04, 2009

Non-stigmatized Commercial Real Estate Workouts

In my noodling around, I found this release which you can find at this link [Edit: here's a link to the PDF (which I've not read!):]

To my eye, it appears that they are trying to use motivation to facilitate loan workouts...meaning that we don't want you to NOT engage in workouts and will not penalize you for it. However, it does beg the question on transparency.

You know that my thinking is that 'they' are only trying to buy time to get this stuff worked out. Hopefully, 'they' will not run out of time.


Press Release
For Immediate Release October 30, 2009

Financial Regulators Adopt Guidance on
Prudent Commercial Real Estate Loan Workouts

The Federal Financial Institutions Examination Council (FFIEC) released a policy statement today supporting prudent commercial real estate (CRE) loan workouts. This policy statement, adopted by each of the financial regulators,1 provides guidance for examiners, and for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The financial regulators recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions. This policy statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision making within the framework of financial accuracy, transparency, and timely loss recognition.

Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications.2 In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined.

The policy statement includes examples of CRE loan workouts. The examples, provided for illustrative purposes only, reflect examiners’ analytical processes for credit classifications and assessments of institutions’ accounting and reporting treatments for restructured loans. The policy statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing institutions’ risk-management practices for loan workout activities.

Policy Statement on Prudent Commercial Real Estate Loan Workouts (docx) (pdf)


Anonymous said...

Another very bearish reversal today. On "Fed Day" no less.


Glenn_in_MA said...

Looks like the oversold condition is being worked off via consolidation...right?

Leisa said...

Yes, a very bearish day, MarkM. Glenn, I think that we could get MORE oversold if we have a news driven event. And seems like UBS is starting to smell like the stinky cheese man.

Anonymous said...

I LOVE your stinky cheese man story!

Remember my steps? 50dma has to become resistance. That is what it looks like on the charts, Glenn.

Bulls need Friday's number to be good or "less bad" to blast it over resistance now. We'll see.

The one good thing about running a long-short fund is that you really don't care about market direction, just that YOUR picks perform. So far up 20% in 2009. :)


Leisa said...

MarkM...aspire to get old and NOT get that label!

Long short funds are starting to be "the" thing. Terrific performance!

Anonymous said...

Hi Leisa - thanks for this post. as a CFO-type, I'd be interested in your interpretation of Note2 at the bottom of the press release: "The NCUA DOES NOT require credit unions to adopt a uniform regulatory classification schematic of loss, doubtful, substandard or special mention. A credit union should apply an internal loan grade...."

(emphasis added). This causes me to pause.... as a CU depositor, I'm having trouble finding an optimistic interpretation.
~ Sleepless

Leisa said...

~~Sleepless...that's like asking a proctologist to do brain surgery! I'm very far away from understanding financial statements/requirements for financial institutions. So, I've no credible opinion. I don't know that CU's engaged in the same level of recklessness as the other banks.

What I'll be watching, though, is whether the FDIC will extend its increased limits on depositor accounts which is due to expired 12/31/09.

Anonymous said...

L, are you watching for foreign market divergence from US? That was an early tell in 2007. I am beginning to see some.

And who keeps buying up the futures from 5am to 8am?


Leisa said...

MM--I presume it was YOU buying those futes!

I was a very vocal opponent of the de-coupling theory...and I believed that the foreign markets would be felled by our own woes.

The USD is so central to all of this.