Wishing one and all a Happy Holiday season, whether that be a Merry Christmas, a Happy Hanukkah, Happy Quanza or even Festivus.  And here’s hoping for a Healthy, Happy & very Prosperous New Year.

On the one hand, Deputy Treasury Secretary Neal Wolin stated that “Wall Street reform helps level the playing field between large banks and small ones, helping to eliminate distortions that previously favored the biggest banks that held the most risk.”

And on the other hand, the American Bankers Association president and CEO Frank Keating asks “When you have 37 employees and 4,000 pages to read and you also have to run a bank — how are you going to do that?”

The day-to-day changes in compliance procedures, exams and even the risk-management methodology forged by major bank regulators already have had a profound impact.  There have been reports in the press that even the regulators are unclear on the rules.

It would seem that the ancient oriental curse “May You Live in Interesting Times” has been visited upon Banks.  Even the Wall Street Journal is talking about Why It’s No Fun to Be a Banker.

Only time will tell whether which view is more correct.  In the meantime, the L-Cam Crew wishes everyone a Safe and Happy Halloween!

A banker in Nebraska told Frank Keating in the Wall Street Journal that his bank now devotes more work hours to compliance than to lending. Specifically, he has 1.2 employees on compliance for every one employee focused on lending and bringing in business. <Banking in a Time of Over-Regulation – WSJ>

From USA Today Last year, reviewing the bank’s 455 home loan applications created more than two months of work for Alesia Harlan, a compliance officer at City State Bank in Norwalk, Iowa.<Small banks say new mortgage regulations too onerous – USA Today>

La Salle Commercial Appraisal Management has a suggestion for our friends at the bank. Let us help you manage your rules, regulations and compliance procedures. Do what you do best – talking and listening to your customers and let us take care of these pesky issues that are probably interfering with your priorities. Contact us today to get started.

With the backing of Microsoft Corp. co-founder Paul Allen, Mr. Depping is planning to setup a new lending entity that will operate beyond the reach of banking regulators—and the deposit-insurance safety net.

“The regulatory environment makes it very difficult to do what we do,” says Mr. Depping.

“The No. 1 complaint that we hear from community bankers is that they feel that regulators have gone one step too far and are choking off lending,” says Paul Merski, chief economist at the Independent Community Bankers of America, a trade group that represents small banks.

While bankers have long complained about their overseers and the quality of the auditors, the only reasons that financial institutions close are due to acquisition or failure. The decision by Main Street is unusual.

See the article in the Wall Street Journal “Fed Up: A Texas Bank Is Calling It Quits”

As a result of the Dodd-Frank legislation and promulgation of rules, the relationship between Institutions, Appraisal Management Companies and individual appraisers is increasingly complicated.  The question of defining “unprofessional conduct.” is one that is influenced by individual states and individual state regulators.  As if we all didn’t need more complications on top of the “economy” and diverging local markets.

The addition of oversight from individual states may be an additional complication for Institutions seeking to stay in compliance and actually make loans!

To discuss how LaSalle Appraisal Management can calm troubled waters and promote better decisions, contact us!

Rob Landis assures you that the following is not a joke and that this automobile will be sold for approximately $600!

China launches $600 car that will get 258mpg

This $600 car is  no toy and is ready to be released in China,  next  year.  Note that the single-seater aero car shows a Volkswagen branding.  Evidently Volkswagen did a lot of highly-protected testing of this car in Germany and has not announced until now where the car would make its first appearance.

The car was introduced at the VW stockholders’ meeting as the most economical car in the world. The initial objective of the prototype was to prove that 1 liter of fuel could deliver 100 kilos of travel.

Spartan interior doesn't sacrifice safety

The aero design proved essential to getting the desired result. The body is 3.47 meters long and just 1.25 meters wide, and a little over a meter high. The prototype was made completely of carbon fiber and is not painted, to save weight.

The power plant is a one-cylinder diesel positioned ahead of the rear axle, and combined with an automatic shift, controlled by a knob in the interior. Safety was not compromised, as the impact and roll-over protection is comparable to the GT racing cars.

As seen on the highway...

The Most  Economical Car in the World will be on sale next  year:

• Better than an electric car – 258 miles/gallon: IPO  2010 in Shanghai .  This is a  single-seated car.
• From conception to  production: 3 years, and the company  is headquartered in Hamburg , Germany.
• Will be selling for 4000 Yuan,  equivalent to US  $600.
• Gas  tank capacity = 1.7  gallons.
• Speed  = 62-74.6  miles/hour
• Fuel  efficiency = 258  miles/gallon
• Travel  distance with a full tank = 404  miles

Seen from behind on the highway

The new look is a reflection of the times that we and our clients find ourselves in.  We’re leaner and – we hope – easier on the eye.  Less pretty pictures and more information & commentary you’ll find interesting!

And, of course, we’d appreciate your feedback.

New accounting standards issued by the Financial Accounting Standards Board (FASB) just last month and taking effect for public companies first are expected to result in lenders re-examining their restructured debt and could compel them to reclassify some of it as troubled. Those adjustments will have to be made public in any quarterly and annual reports filed after June 15.

In addition to the accounting change, banking regulators have also started cracking down on lenders and requiring some to go back and reclassify some of their receivables as troubled debt restructurings (TDR).

The issue of TDRs sprung to life this month after FASB last month issued new guidance directing institutions to standardized what constitutes TDRs, and also report redefault rates on TDRs on a portfolio segment basis. Law and accounting firms have jumped into action with blogs and webinars for their clients explaining the change.

Wolf & Co., a leading regional certified public accounting and business consulting firm with headquarters in Boston, reported that in evaluating whether a restructuring constitutes a TDR, a lender must separately conclude that both: the borrower is experiencing financial difficulties and the restructuring constitutes a concession.

• Transfer of assets from the debtor to the lender; or
• Granting of an equity interest to the lender by the borrower; or
• Modification of debt terms such as a reduction in the interest rate, payment deferrals, extension of the maturity date at a less than market rate (for similar risk), reduction of the face amount or maturity amount owed, or a reduction/write-off of accrued interest.

Some of the concessions described have been an oft-used tool by lenders to extend the maturity date on CRE loans to give borrowers and banks more time to ride out the economic recession and possibly recover some of the lost value of an asset – “extend and pretend.”

Tim Tiefenthaler, managing director in Las Vegas of McGladrey, an accounting, tax and consulting firm, posted to his firm’s clients that, according to the FDIC Quarterly Banking Profile, TDRs for all insured institutions have grown from $6.9 billion from year end 2007 to $87.5 billion at year end 2010.

“Federal banking regulators have noted that TDRs is an area of focus for examiners and the larger volume of modifications has resulted in significant concerns about the level of allowance for loan losses associated with these loans,” Tiefenthaler said. “Because of the magnitude of restructuring activities, regulators, investors, auditors and lending institutions have raised concerns about the diversity in practice in identifying loan modifications that constitute TDRs for a creditor.”

The new guidance issued to standardize how TDRs are accounted for is expected to increase the level of loan modifications that will be reported and accounted for as TDRs. It will be also be the first time that redefault rates on commercial real estate loans will become available on a broad basis, according to a new Fitch Ratings report on the topic.

Given the recent and forecasted shifts in TDR types away from residential loans, this information will be invaluable to asset quality analysis, especially as it relates to CRE-heavy loan portfolios, Fitch said.

First-lien residential mortgages continue to dominate the current mixture of TDRs, representing 87% of total outstanding TDRs, according to Fitch. These loans have experienced extremely high re-default and growth rates over the last two years.

The mixture has changed during the past year with nonresidential mortgage TDRs growing at a significantly faster rate than residential TDRs. Overall, total TDRs amongst U.S. banks grew at a 48% pace in 2010, with nonresidential TDRs growing by 85%.

Half of all CRE loans maturing in the next few years are anticipated to mature underwater and if extended without significant credit enhancement are at risk to be classified as TDR under new accounting guidance, Fitch estimated.

Fitch considers all TDRs nonperforming (regardless of accrual status) for the purposes of asset quality analysis. Fitch said that TDRs by their very nature have increased credit risk.

Fitch said it does not expect that these trends will materially affect ratings on an industry wide basis. However, the ratings of some financial institutions could be negatively affected to the extent that specific lenders experience disproportional growth in TDRs and report unusually high re-default rates.

The impact of reclassify receivables as TDRs was evident this week when NASB Financial Inc. in Grandview, MO, reported that it received a letter from the Office of Thrift Supervision directing its North American Savings Bank FSB to amend and restate its financial results for the quarter ended Dec. 31, 2010. OTS directed the $1.3 billion institution to reclassify certain residential development loans receivable, as TDR.

As a result of these restatements, NASB’s previously reported net income for the quarter ended Dec. 31, 2010, of $2 million will decrease to a net loss of $3 million.

NASB said the loans to be reclassified are paying as agreed and have not been restructured in the traditional sense by offering any concessions that discount the original terms. However, the original maturity dates were extended, the bank holding company said.

The financial services industry is voicing their increasing concerns that “more needs to be done to ease the uncertainty hindering financial institutions and the marketplace”, as they struggle to comply with the Dodd-Frank Act.  “We thought that when you set up this Financial Stability Oversight Council that you, as Treasury secretary, were going, essentially, to be the air-traffic controller, and you are not doing that job,” said Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association (SIFMA).

What does this have to do with Financial Institutions already stressed with additional government oversight?  Does it mean that more resources will have to be allocated to compliance and regulatory monitoring, and more of a bank’s top talent will be unavailable for productive activities?  Not necessarily!

LaSalle Commercial Appraisal Management stands ready to assist banks with solutions and strategies that allow financial institutions to keep their top talent productive.  Contact us today to start the dialog!