Banking Law

A couple of weeks ago, I was interviewed for a story that appeared in last week's Bank Safety and Soundness Advisor (paid subscription required) about whether or not banks with distressed loans ought to hire a "chief workout officer." I gave the reporter my thoughts on the matter, and it appears that Peter Weinstock, another Dallas-area attorney (Peter's a long-time banking lawyer in Texas and currently a partner in Hunton & Williams' Dallas office), and I got most of the ink. Nevertheless, the best line of the entire article was delivered by former bank CEO and current bank consultant Pat Dalrymple. Even though we weren't on the phone at the same time, I unknowingly acted as Pat's straight man.

"Should a billion dollar bank have a chief workout officer ? someone with specialized expertise?" asks Kevin Funnell, an attorney in the Frisco, Texas office of Bieging Shapiro & Burrus LLP. "In an ideal world, yes. It takes a different skill-set to manage distressed credit as opposed to performing credit. Most loan officers who came up in the last fifteen years have seen nothing but pretty good times. They haven?t dealt with this kind of carnage."

Letting loan officers handle the workouts is an especially bad idea, agrees Pat Dalrymple, a bank workout consultant and former CEO. "Banks had these go-go loan officers whose job it was to produce business, but now it?s all gone sour," he says. "So they put the loan officers in charge of the problem assets. That?s like having a nun in charge of a brothel. I can?t think of anyone less qualified."

I hadn't heard the "nun in charge of a brothel" line since the 1980s, when I sometimes heard it with reference to the "entrepreneurs" the regulators approved to jump-start the sleepy savings and loan business. Instead of jump-starting the business, they jumped its bones. Conveniently, the role of regulators in encouraging risk-averse savings bankers to "take some risk in order to make some money" has somehow disappeared from the radar screen.

I think all three of us agreed that a chief workout officer is a good idea for banks that can corral such an animal, and even for some that can't. As I said in the article, in some cases, hiring the right skill set for a bank that has been criticized for not having it can be a matter of safety and soundness compliance, not merely a pure business matter. And as Weinstock points out, you don't want to "underhire" for such an important position.

"The problem is, there?s a real shortage of talent," says Weinstock. "The key is to find talent that meets the responsibilities of the position. If you under-hire, you?ve placed a lot of confidence in a person who can?t perform in what is arguably the most important role in the bank right now."

Easy for a few lawyers and consultants to say, isn't it? Too bad we're not paid by the soundbite.