The World is Falling Apart – Part I

Day 1: Welcome to my blog. I recently joined Santos, Postal & Company, P.C., a well regarded
C.P.A. firm established in 1971, as a Principal. I will be responsible for developing a consulting
practice for the firm that will specialize in the following:

 Assisting with renegotiating and restructuring commercial and personal debt

obligations,

 Working with retailers to bring their rent in line with appropriate rent to sales ratios
that have been dictated by the declining financial markets,

 Helping homeowners restructure mortgage loans that no longer make sense based
upon the values of their homes and other extraneous information that has caused financial
hardship,

 Renegotiating personal real estate taxes due to the declination of home values,

 Providing operational and financial support to clients in need of someone who can
plan strategically, and

 Managing the future wealth of clients via prudent, long term wealth advisory
consulting.

I am very excited about being affiliated with reputable and distinguished firm and more
importantly, being able to bring my turnaround management/restructuring/workout skills to
businesses and individuals.

Today’s heading is only particularly true. The world has not completely fallen apart; it’s merely
very sick. Kind of like having a bad flu.

Unemployment is clearly higher than the government statistics allude as they do not take into
account part time employment, under-employed, or those who have given up completely on
finding a job and become “self employed”.

Home values have declined precipitously, credit availability is nil, wealth has been decreased,
Wall Street greed still exists (not sure how they will implement it these days), and the
government’s answer to all of this is spend, spend, and spend some more.

As I post more entries I will illuminate upon the clients I work with (always marinating strict
confidentiality and never posting without getting permission to discuss a subject).

As I’ve only been with SantosPostal for three weeks, I’m still getting acclimated. The people
here are very smart and have been very welcoming of me. I’ve already been working on
situations that include assisting a builder whose loan matures in late summer 2009 and needs
help renegotiating with his lender, an individual whose circumstances have caused a need to
have their debts managed, and another person in arrears on their mortgage who is afraid of losing
their home. I look forward to bringing my 26 ½ years of experience to the table and being able
to help these people in need.

As experience has shown, while the situations I’m working on are very serious, there is usually
humor that occurs in the conversations I have with lenders. The more bureaucratic an
organization the greater the chance that something humorous will occur. If I won’t violate my
confidentially rule, I look forward to entertaining you with some of these stories, as well as
keeping you abreast on what’s occurring in the credit markets, how landlords are reacting to
various proposals to restructure rents, and some turnaround management situations so that
readers of this blog will both learn something valuable and enjoy reading the stories.

Thanks,

Bob

Bad Bank, Good Bank

There has been much talk recently on having the government establish a “Bad Bank” that would
acquire toxic assets; thereby allowing Banks to continue to operate under the “business as usual”
format.

Maybe someone from the Obama administration should call the former executives of Mellon
Bank, who had established Grant Street National Bank, in liquidation, over two decade ago.
Why not ask someone who ran a successful Bad Bank how the process was structured, operated
and achieved success. Why waste so much time, energy, and MONEY to reinvent the wheel.

I just got done reading one article explaining how successful the Resolution Trust Corporation
(“RTC”) was. Yet, a few days ago, another article stated that taxpayers lost 31 cents on every
dollar handled by the RTC. I find this hard to believe as every loan I had negotiated with the
RTC on behalf of clients had been acquired for 30 to 40 cents on the dollar; meaning the
government lost 60 to 70 cents on these loans. Of course, there was no source for the statistic in
the article.

Whether or not a Bad Bank system is established, how will Banks get back to basics – i.e., take
in deposits and loan money out using prudent underwriting standards. Greed drove Banks
to focus on developing bizarre products ( IOs, POs, no doc loans, the A and B tranche, yadda,
yadda, yadda..) and the secondary markets allowed for so much liquidity that Banks kept
originating and getting fees. Now the day of reckoning has come.

I look forward to working with clients to help them work through their banking issues.
 Mortgage Modification for High Net Worth Individual

As I usually work on mortgage modifications for those having difficulty paying their mortgage, I
had the opportunity to assist someone who easily pays their mortgage; and, the experience was
quite gratifying.

A very successful person called me. He owns three homes, only one of which is encumbered.
It’s a vacation property in New England.

He had a $400,000 mortgage at 6% with 12 years remaining on his initial 15 year mortgage. He
noticed that market rates are now lower and was wondering if he could reduce his interest rate,
without going through all the paperwork and costs associated with a refinance.

His lender was a small savings bank in New England. The bank was portfolioing the loan – i.e.,
it had not been sold.

I called the bank and explained who I was and assured the lender that I was not calling to try and
modify a loan where their borrower could not pay the mortgage. My client did not want any
additional term, merely a reduction in rate. The monthly payment would be debited directly
from his checking account.

After an explanation of what I was trying to accomplish, the lender was astute enough to
recognize that he did not want his bank to lose the interest it was earning on a performing loan
from a very credit worthy borrower. The bank agreed to reduce the interest rate to 5 ¼%, with
no other changes to the loan.

My client will save approximately $20,000 over the remaining term of the loan. The cost and
time for me to speak “lenderese” to the banker was negligible. A win-win situation for all.

Thank you all for your calls of good wishes for my relationship with Santos, Postal, as well as
your referrals! I truly appreciate everyone’s consideration.

Austin Powers or Timothy Geithner

Dr. Evil was going to “hold the world ransom for 100 billion dollars.” In the Austin Powers
movie, everyone laughed because it was such an astronomical amount of money that no one
could possibly come up with. No one, that is, until Mr. Geithner and team determined that we
need to help the economy by funding an 800+ billion dollar relief plan. This figure, of course,
will grow to exceed one or two or even three trillion dollars by the time all the earmarks get
added on.

I am a capitalist. When Henry Paulson and Ben Bernanke told us in Fall 2008 that unless we
immediately approved what was to be known as, the Troubled Asset Relief Plan (“TARP”) the
world economic markets would collapse I got scared. Who was I to argue with Mr. Paulson and
even more so with Mr. Bernanke, who wrote his Ph.D. dissertation on the Great Depression. As
it turns out, these two knew nothing. Half of the $700 billion TARP funds have essentially been
wasted. No one knows how the money was spent and we can’t get an accounting of the funds.
While hindsight is great, we should have allowed the markets to determine which companies
survived and which ones failed.

I read four different articles today on what Mr. Geithner plans to do with his relief package. Not
one of these articles articulately explained how the “new stimulus” program will work. I can
guarantee it will increase government and exponentially increase bureaucracy. More social
programs of unknown causes, and no economic stimulus.

On a bit of a different subject, in Montgomery County, Maryland an at large delegate, who shall
remain nameless, wasn’t too upset that Montgomery County did not provide enough financial
incentive for Hilton to move to Maryland, as they will be moving to Fairfax County, Virginia.
The delegate stated “the county has virtually no unemployment….the states that give away the
most in taxes (to corporations) are states none of us would live in.”

Last time I looked, Northern Virginia wasn’t such a bad place to live. And “virtually no
unemployment” – give me a break. When was the last time the delegate looked in a vacant store
or restaurant? Unemployment continues to expand – although optimists would say that 92% of
people are still employed. This is having a dramatic negative effect on the area (note: see same
store sales figures for just about all businesses).

Mr. Geithner, the public deserves an explanation of how 800+ billion dollars will be spent. Just
as we were incredulous when Dr. Evil demanded 100 billion dollars, it is more unbelievable that
my money will be given to programs of an unknown nature to “stimulate the economy”, yet it
doesn’t seem that there are any controls on the program. And on the Maryland issue, when
counties provide incentives to bring new business to its area, job creation, tax revenue, housing,
etc. all improve.

Dr. Evil should have asked for 100 quattuordecillion dollars (a real figure by the way). That
would have been funny. His request was way too small by today’s standards.

Executive Leaders Radio Program

I had the pleasure of recording a two minute infomercial on the Executive Leaders Radio
Program. The show will air on February 12 on WWRC 1260/AM from 6:00 – 7:00 P.M.
(www.obama1260.com) and on February 16 from 8:00 – 9:00 A.M. on WDMV 700/AM
(www.dcradio700.com)

Hope you enjoy the entire segment.

 Credit Cards

Do you know the rate of interest you’re being charged by your credit card company? When you
received the “zero percent on all balance transfers for six month” offer, it seemed like a great
deal. However, what rate of interest are you being charged now? You might be very surprised
to see a number approaching, or greater than, 30% - that’s right 30% annual interest.

If your credit card company received your payment, even one day after the due date, you may
have been placed into a first tier default interest category. Therefore, what started off as zero
percent and then became let’s say 7.5% after the six month introductory period, may have now
jumped to 18% because you paid after the due date. Miss another due date, and your rate of
interest is now 26.99%.

Wow, one late payment on your credit card and the card hits you with an increased interest rate.
Here’s what makes this situation even worse. When your other creditors obtain a copy of your
credit report as part of their review process, they see that you were late on one card. Even if
you’ve never missed the due date on their specific card, there is a good chance they too will
increase your interest rate because you are perceived to be a greater credit risk by missing the
payment due date on a completely different card. Seems real fair, doesn’t it?

Adding insult to injury, when you missed the due date on the first card, in addition to increasing
your interest rate, you may have been assessed a late fee. These can be as high as $39. Add the
late fee to the astronomical interest rate and the imputed rate to the lender becomes usurious,
although not by legal standards.

Bottom line, look at your credit card statement, see what your interest rate is, and if it appears to
be too high, call me for help. I may be able to take a few simple steps to get your interest rate
back to a reasonable level.

Continue to read the blog as I’ll probably talk about President Obama’s Stimulus Package during
the next few weeks.

Dividends (NOT)

JPMorgan Chase announced today that it is cutting its quarterly dividend from $.38 per share to
$.05 per share. This represents an 87% reduction in the amount of its dividend.

My first blog posting was titled “The World is Falling Apart –Part I”. Make no mistake,
JPMorgan will not be the last firm to make a move of this nature. Although it will “save $5
Billion” by decreasing its dividend, what about the stockholders who relied on the dividend for
income?

Check your portfolios – and do it now. Many REITS will cut dividends (possibly paying in
shares as though you can spend that money), as will other companies who have had long term
histories of paying dividends, in an effort to “save cash”.
It seems as though all forms of historical fundamental stock analysis is out the window. Retirees
who actually spent less than they earned, saved, and invested in a conservative portfolios are
going to see their incomes cut as companies reduce dividends. Less income means less
purchasing. Who and what will stimulate the economy?

As more people continue to lose jobs, there will be an inevitable rise in crime – even in the good
neighborhoods.

Every day gets more interesting. Every new problem is creating a waterfall of problems; and, all
solutions posed by the government seem to be creating new problems too.

I wish I could tell you the magic answer to all of the problems. Right now, I’m watching from
the sidelines, helping companies that have sought my guidance, and trying to maximize
opportunities. I welcome your thoughts – feel free to comment.

Success Exists!!

I had the pleasure of speaking with a very old time client this morning; one I have not spoken
with in at least 5 years.

When I first met this client in the early 1990s, he was a mechanic at a gas station, barely earning
a living, but supporting his family nevertheless. He wanted to buy a service station of his own –
with gas pumps, service bays, and State inspection capabilities. He truly had very limited assets,
but he had an unexhausted ability to work hard and strive for a better life.

I arranged for bank financing for 100% of the purchase price, plus working capital (yes, I know,
times were different and we no longer live in Wonderland). My client, of course, had to
personally guarantee and pledge his house as additional collateral, even thought here was
minimal equity in the property, but he didn’t care since he knew he would be successful.

As he grew the business he bought a new home, which I provided the mortgage financing for.
He implemented a retirement plan (which I sold and serviced for him) for his employees (yes, a
gas station can have a retirement plan and it does serve to retain quality employees for the long
term). He was, by any definition, a success. Unfortunately, after I sold my financial services
firm we lost touch.

Through a series of coincidences, I heard from him today. His existing station is thriving. His
children are getting older and they are successful too. His wife, who labored with him for years
at the station, managing administrative matters, opened her own retail business and is also a
financial success.

He called me because he wants to acquire two more service stations. An owner of these stations
prematurely passed away and his widow wants to sell the business. My client tracked me down
and wants my help in arranging the financing, negotiating the lease, etc.
This call made me happy on many levels. First, I’m delighted that my long time client continues
to achieve success. Consumers still need gas for their cars and, as seen by declining car sales,
people are still servicing their cars so they can retain them longer. So, even in this miserable
economic environment, some businesses remain successful. I’m sure that the fact that he is a
decent and honest person who provides great service and truthful information helps his business
too.

The second reason I enjoyed the call was the fact that a client I had not talked with in years took
the time to track me down. If it wasn’t for my efforts, he may have never been able to buy his
existing station. I helped him become a self employed, successful business owner, buy a new
house, and take care of his employees.

As most of my days have been spent helping those experiencing some form of financial
difficulty, this call was a pleasant change and really put me in a great mood.

I hope your day is a good one too.

Chicken Little

While discussing the retail world with a friend of mine today she stated that “Chicken Little was
right”. To refresh your memory, this fable was about Chicken Little seeing an acorn fall and
believing that the sky was falling down. This action created mass hysteria among other animals
and ultimately caused many deaths, including that of Chicken Little.

I tend not to believe everything I read. The media and pundits always create hysteria – that’s
what sells. If they were around when Edison invented the light bulb they would have published
an article lamenting the death of the candle.

However, as I’ve been stating and as appropriately stated to me this morning, Chicken Little was
right.

I had dinner with an old college friend last night. Great guy; senior executive at a publicly
traded company.

His firm is selling non core businesses. Whereas a year to 18 months ago they were selling
similar ventures for 10 – 12 times EBITDA, they can now barely get 2 times EBITDA. Strategic
buyers keep lowering their bids; Private Equity buyers are non-existent. Although some of these
entities being marketed have significant cash flow, arranging financing for the acquisition may
prove to be fruitless. By the way, nothing we discussed is confidential and is part of the
company’s well disclosed business plan.

The above represents just another anecdotal piece of information about how bad things are. The
Government’s stimulus plan is absolutely not the answer. When the Government enables,
productivity will decline and business and consumers will suffer. Twenty years ago I remember
a Political Scientist telling me at a seminar I attended that the crux of finances, the money center
of the United States, would relocate from New York to Washington, D.C. over the next two
decades. Boy was he ever right, just for the wrong reasons.

Wine or Banks; or is it Whine about Banks

Last night I was having dinner. Nothing fancy, a very nice chicken Caesar salad. I wanted to
have wine with dinner. Since I was having a fairly simple meal, I thought a simple bottle would
be appropriate.

I opened my wine cabinet, looked around for about 30 seconds, and pulled a bottle of Charles
Shaw’s wine that I had picked up on a trip to Trader Joe’s last year. As many of you know, this
value wine is commonly referred to as “Two Buck Chuck” as it sells for $2.00 (although you pay
a bit more at Trader Joe’s).

I specifically pulled this bottle because I found humor (sic) in the fact that I had to pay more for
this wine that I would have to pay for a share of Citigroup stock.

I know I’ve been a doomsayer. As predicted in an earlier blog, many companies have now
reduced or eliminated dividends. Today’s unemployment figures are scary. Our Debt to GDP
ratio is now at 75%; its 185% in Japan. They’ve been flooding the markets with cash for the last
25 years.

Citigroup stock – about a $1.00,

Two Buck Chuck - $2.00,
Dow Jones Industrial Average – at 3:30 p.m. down another 140+ points,
Giving the Prime Minister of England 25 DVD’s as a gift for a visiting dignitary – PRICELESS

Summertime Blues

For the first time in 11 years, both of my sons will be home for the summer. They’ve historically
gone to sleep away camp, first as campers and later as counselors.

My oldest son, who will be taking his MCATs in April, has applied for various medical
internship programs. My youngest son has decided that he’s going to stay home this summer
and work. He is very motivated and likes to earn money. I initially thought it was too early to
start looking for a summer job, but a recent conversation I had has made me rethink this issue.

A friend’s wife (a school teacher) and her daughter were going to be counselors this summer at a
local camp. The camp recently rescinded their offer letters to these two as camp enrollment is
down substantially from last year; therefore, staffing requirements are down too. Duh?? This
makes perfect sense.

If the national unemployment rate is 8%+, then of course summer jobs will be negatively
affected too. Typical summer jobs for school aged children such as working in fast food,
restaurants, camps, and retail stores will be reduced or eliminated since these businesses have
experienced a declination in sales. What’s a kid to do to earn a living in a world of 8%
unemployment?

Become an entrepreneur. Cut lawns, figure out how to sell items you no longer need on eBay,
offer to clean out basements…. In other words, come up with a Business Plan that includes
marketing your services and then deliver upon them to your clients. You will find this rewarding
on a number of levels.

Also, if you have the ability, become an intern in a business you enjoy, or think you enjoy. An
intern is a polite word for unpaid worker. However, this can be an opportunity to experience a
field you’re not familiar with, and learn more about it. After the end of the summer you’ll either
want to learn more about this specific field or determine that it’s not the right course of action for
you to pursue. And here’s a secret about internships. Although they are typically “unpaid”,
most companies will provide you with a goodwill payment at the end of the summer.

Of course, volunteering can be rewarding too. There are many organizations that would gladly
accept your help. Seek out something that is meaningful to you and give back.

Eddie Cochran sang “Sometimes I wonder what I’m gonna do, But there ain't no cure for the
summertime blues.” Under no circumstances should you sit around, play X Box, and bemoan
the fact that you can’t get a job. Keep a positive attitude and keep applying for jobs. If that fails,
follow my advice and make your own job or volunteer. As George Patton said, “an active mind
cannot exist in an inactive body.”

U.S. Small Business Administration

President Obama unveiled his Administration’s plans to boost lending to small businesses. The
plan includes having the U.S. Small Business Administration:

 Temporarily raise guarantees to up to 90 percent on SBA’s 7(a) loan program, through

calendar year 2009, or until the funds are exhausted. This increase in guarantee levels
will help provide banks with the greater confidence they need to extend credit during the
current recession, will mean more capital available to small business owners around the
country.

 Temporarily eliminate fees for borrowers on SBA 7(a) loans and for both borrowers and
lenders on 504 Certified Development Company loans, through calendar year 2009, or
until the funds are exhausted. This will mean more capital available to small businesses at
a lower cost. The fee elimination is retroactive to February 17, the day the Recovery Act
was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

 Additionally, the President announced today that the Treasury Department will commit
up to $15 billion to help unlock the frozen credit markets by purchasing small business
loan securities currently frozen on the secondary market. By purchasing these securities,
 it will unlock these secondary markets, and in turn, free up more capital to jumpstart
lending for small business owners. The SBA has worked closely with the Treasury
Department to address the need to unlock these secondary markets for SBA loans.

Oh, the best laid plans.

Do you know what James Sanders, James Abdnor, Susan Engeleiter, Pat Saiki, Erskine Bowles,
Philip Lader, Aida Alvarez, Hector Barreto, Steven Preston, and probably Karen Mills have in
common. They have all had the title of Administrator, U.S. Small Business Administration since
I started to get active with SBA loan programs 23 years ago. Ten Administrators over a 23 year
period; that equates to an average tenure of 2.3 years.

When I first got involved in SBA 7(a) lending in 1986 the SBA provided a 90% guarantee and
the loans were very saleable on an active secondary market at significant premiums above par
value. I could originate a 25 year real estate loan, using the 7(a) loan program, and sell the loan
for 10% above par value on the secondary market. Why wouldn’t a lender do this all day long?
Loan money, obtain the government’s 90% guarantee, get fee income of 10% of the loan
amount, and, if the loan went into default, get your entire at risk principal back through exercise
of the guarantee! This type of program isn’t too good to be true, it existed, but lacked
participation.

Some of the reasons participation in the 7(a) loan program have been less than stellar over the
last two decades that I’ve been involved with it is because:

1. Paperwork is required to submit an SBA Loan Package to a bank and then for the bank
to submit its guarantee request to the SBA. Lenders shun doing this paperwork.
2. The SBA is a bureaucracy. Once they receive the correctly completed forms from a
lender requesting its guarantee, they often do not turn around the information in a timely
manner. Worse yet, if a form is missing some information, the entire package is held up
until the form is properly completed.
3. It takes a bank just as long to underwrite a $5,000,000 loan request as it does to
underwrite a $500,000 request; however, the profit to the bank is 10 times greater.
Therefore, although banks like to say they loan money to small businesses, small
businesses are the lifeblood of the economy, and many other platitudes, the fact of the
matter is that there is more profitability for a bank to loan on a larger scale than to loan
funds to small businesses. This is evident in how small business departments at banks are
staffed, and how there is a lack of prestige being in a small business department at a
bank.

Today’s actions by President Obama make reasonably good press. However, based on my 23
years of historical experience in working with the SBA and seeing how the process really works
for borrowers, banks, and the SBA, I’m guessing that all we really saw today is some additional
bureaucracy in action and no real results will be produced from these actions.

As a final note, although most lenders did not see the benefits in the 7(a) program that I
illustrated above, the company I worked for and some other non bank lenders clearly saw how
we were able to assist small businesses with much needed capital, as well as how we were able
to profit. Although the paperwork was cumbersome, it was easy to automate and master; and,
once I developed an exemplary relationship with peers at the SBA the process of originating
SBA loans was very gratifying. Therefore, while history tells me today’s action by the President
will not benefit business, I have always been a believer in the SBA 7(a) loan program and hope
that its newest Administrator, should she ever actually get appointed, will help promote this
valuable endeavor too.

Pat On My Back (Or Am I Scared)

In my February 10, 2009 Blog titled “Austin Powers or Timothy Geithner” (which is a must read
by the way), I was complaining about TARP and Mr. Geithner’s lack of details about the
Stimulus programs. In the penultimate paragraph of that Blog, in reference to TARP and Mr.
Geithner, I said “…yet it doesn’t seem that there are any controls on the program”.

AIG paid out in bonuses approximately an identical amount of money it received in funds from
the Government in order to prevent a collapse of world financial markets.

Let’s see, over a month ago I thought there were no controls over TARP and now it’s learned
that TARP funds paid million dollar plus bonuses to 73 AIG employees, 11 of whom are no
longer employed at the company. That is my Pat On My Back – I was right with this
predication.

Here’s my fear – the Government is now contemplating a method of taxing these executive
bonuses (if not immediately returned by the recipients) anywhere from 95% to 100%. There are
various proposals on the table that basically provide for a special excise tax on bonuses received
from firms that get a federal bailout. What’s next, taxing bonuses if your firm has a net profit
margin greater than the average of those in your industry, or taxing bonuses if you drive a car
that costs more than $40,000, or if your children go to an Ivy League school? I can almost hear
people saying this will never happen. Based on current economic conditions, never say never.

This is getting out of control. While my February 10 predication regarding lack of controls with
TARP funds was correct, I hope my “tax for any reason we can think of prediction” turns out to
be completely wrong.

PPPF, FDIC, LMNOP…

I’ve been writing about the banking crisis for a while. Feel free to go back and read Bad Bank,
Good Bank, Austin Powers or Timothy Geithner, or my most recent posting Pat On My Back (Or
Am I Scared) for additional information on my thoughts on this matter.

Where is Jack Bauer when he’s really needed? Who cares about some war in a fake country and
what’s happening to the fake country’s citizens? We need Jack to solve the banking crisis in 24
hours!
Today the details about the Treasury’s plan to partner with the private sector to buy toxic assets
was released. First of all, while all the articles I’ve read state the details have been released trust
me, the details have not been released. Although more information than Secretary Geithner’s
original plan of we’re from the government and we’re going to help have been made available,
the intricacies remain unknown.

What is known, in summary, banks will sell pools of loans under the Public Private Partnership
Fund (“PPPF”). The FDIC will determine its willingness of how much funding it will guarantee
(with leverage up to 6 to 1 debt to equity). The loan pool will sell to the highest bidder, with
PPPF funding 50% of the equity required for the purchase. The buyer would then issue debt that
would be guaranteed by the FDIC. The FDIC will receive a fee for its guarantee and the sold
assets will be managed by the private sector. The goal is to sell $500 billion of existing assets
that are in danger of default.

In theory, selling toxic assets will allow banks to begin loaning money once again.
Unemployment is killing us. A number of my contemporaries have been laid off. They have
ceased eating out, buying big screen TVs, and are no longer purchasing 1987 Cabernet
Sauvignon. If banks start loaning money, companies can grow and invest, all of which needs
people. Employment expands (or at least stops contracting). People eat out again and
consumers spend in retail stores. As they said on Seinfeld “yadda, yadda, yadda…”

When the Resolution Trust Corporation was the “in agency”, assets were sold between thrifts
(that the government seized) and the public, without government financing. Will the
government’s involvement/intervention help or hurt this program? Policy hasn’t been the answer
to the problem, and I’m just not sure that the government’s involvement in this issue will be seen
as a help, rather than a hindrance. Sure, getting free money is great, but how it will be accessed
and whether this program will work is yet to be seen. I’ll remain cautiously optimistic for now.

As the stock market is looking for anything positive, today’s news is perceived as good as it’s
now 3:30 p.m. and the Dow is up 5.5%. Let’s hope that when Jack Bauer kills someone tonight,
he doesn’t take down Messers. Dow and Jones.

Bank Intellect (An Oxymoron)

I’m seeking some validation of a case I’ve been involved with and will try to explain the
premise, without violating any confidences.

A client of mine is involved in a business, which for discussion purposes let’s say makes
widgets. Word on the street was that a local competitor, who uses a bit of different technology,
was going out of business. We performed UCC searches and found out that the secured lender
was someone we had a relationship with. After the initial rumors of the competitor’s demise, we
later found out the competitor closed its doors with no notice to anyone (staff or clients) and
ceased operations.
My client felt that it could enhance its business by obtaining the competitor’s client list,
equipment, staff, facility, etc. In other words, there was some value to the competitor's business,
but no one was sure what the true value might be.

First, I called and sent e-mails to the competitor in an effort to broach an introduction and see if
we could possibly assist the competitor by forming a joint venture, acquiring its business, or
doing something to help mitigate some of the loss and damage that occurs when a business shuts
its doors. I received no reply to my contact.

Next, I called the lender. We were the ones that alerted them that this business had ceased
operating. We offered to meet them at the closed business’ facility and requested some
additional items for due diligence in an effort to help the lender minimize its anticipated loss.

The earliest the bank could meet us was one week later. I found that a bit strange because one
should immediately go to any business that closes; waiting a week is like waiting an eternity in a
workout situation.

We met the lender who had retained an appraiser to appraise the company’s equipment. I can’t
get into details about the type of equipment but suffice it to say that we’re dealing with some
large pieces of 3 – 5 year old production machinery.

Who will the lender sell this to? Who will buy this business outright? As time is the enemy, the
ceased enterprise’s clients will seek to have work done by other companies and the client list will
diminish in value. Action needed to be taken immediately to preserve value.

We proposed just that – ACTION. We would assist the lender, for a monthly fixed fee, to get the
business operational again and maximize value. Our plan included repayment of the bank’s debt,
in an earn out/joint venture format, not on its original terms. In case the bank did not want to
proceed in this manner, we asked that they provide us with a price they would take for the clean
and marketable sale of the company’s assets.

The bank called me and declined to obtain our assistance (it is still a free world), nor would they
tell us a sales price for the equipment. They wanted me to negotiate against myself.

Here’s my dilemma. I truly believe we’ve analyzed the situation 100% accurately. No one in
my client’s local market has the financial wherewithal to buy this equipment. I do not believe an
out of market company is going to travel to see the equipment, test it to ensure it actually works,
and then transport heavy machinery to its new location. As time goes on the deceased
company’s clients are taking business elsewhere, vendors continue to sue (and win) and
hopefully the bank has a perfected interest in the company’s assets. The company’s phone
number and internet connection are terminated so the bank cannot get leads through forwarding
these contacts. The question is, what is the bank thinking? What are they seeing to minimize
their loss that I have not recognized? Where do they believe value will be obtained? Selling the
equipment for its appraised value – I don’t think so. Selling the client list – maybe, but the
passage of time reduces its value.
The bank had no idea its customer ceased operating, we told them. We alerted them to various
lawsuits and other actions that their customer should have been doing and did not (sorry to be so
secretive on this matter). What is the bank thinking?

Okay, this problem certainly isn’t as big as some of the other banking problems that we’re
experiencing, but in some ways it’s just as big. As the economy continues to suffer, smaller
financial institutions will experience more problem loans, or, the term I love, special assets
(although the only thing special about them is that they stink). If these situations aren’t handled
in an expert manner, loan losses will be greater than reserves can handle and, capital will
continue to be impaired; thereby continuing to hinder loaning money to growing and productive
businesses.

For all the bank Presidents, Chief Credit Officers, Chief Lending Officers, and others of decision
making authority I urge you to really step outside the box and look at how your problem loan
portfolio will be managed.

I will follow up on this matter and report back if our decision making on this subject was
accurate, or if the bank out thought us or knew something we did not.

Random

I had written a really great entry titled “Bank Intellect (An Oxymoron)”. This entry related a
recent experience I had with a lender who, in my opinion, is handling a problem loan in a less
than prudent manner. Due to a series of reasons, I will not publish this story (at this time).
Count on seeing the story once the dust settles; you will find it informative, insightful, and
entertaining.

Within the last week I’ve been interviewed by two different magazines. The first periodical,
Insto, will have an article discussing Have Bank Stocks Hit Bottom. You can guess my thoughts
on this subject. The second magazine, MyBusiness, is publishing an article on What You’ve
Done to Correct a Bad Business Situation. I related some interesting stories of what I’ve done
when my company has inadvertently failed to meet customer expectations. I always strive for
exemplary service and will go to any means to rectify a situation that, for one reason or another,
left the customer with a bad feeling. Both of these articles should be published within the next
30 – 90 days.

Here’s an example of when a company should have tried better to satisfy me! In December I
returned a cable TV box because it wasn’t working properly. My subsequent bills for December
– March have had “pay per view” movies on them that have originated from the cable box I
returned. You would think one simple phone call would correct this error. I apologize – I used
the word think and cable company in the same thought.

I’ve spent no less than 6 hours trying to explain to people with no capacity to think that I should
not be billed for movies that were not originated from a device in my house. I’ve told the cable
company to turn off this box since it’s not in my possession. Fortunately, I’ve elevated this issue
to a lobbyist for the cable company and he’s trying to help me; although the situation hasn’t been
corrected for the last three months. Sisyphus may have had an easier experience than I’m having
with my cable company!

I am a 20 year customer of this cable company and I pay approximately $150 per month for
cable and internet service. All I initially wanted was a credit for the eight movies billed to my
account that I did not order. The cable company has treated me like I’m trying to steal services.

If I was the cable company I would immediately issue a credit AND provide three free months of
service for this valued customer (me) for the time and aggravation I’ve encountered in trying to
correct a problem that the cable company initiated. This isn’t an example of poor services, it’s
one of no service.

As far as the economy goes – it remains depressing. Another friend of mine was laid off from a
firm where he almost had 25 years of service. He worked for a very well established company.
Another friend of mine who is a general contractor told me that sub contactors are not only
answering his calls, which they are typically bad at doing, but they are also following up on bids
they’ve submitted to see if they received a job. This action of sub contractors following up is
almost unheard of and represents my friend’s basis for how difficult the world of business has
become.

On a good note, I figured out how to import this blog on both LinkedIn and facebook. In the
month of March my readership increased 60% from February’s readership. Thank you very
much.

I promise to provide a more substantive update soon as there is so much going on in the
economy. My thoughts about all of the new government intervention will be predictable, but
you should enjoy my perspective nevertheless.

Cicero, Unemployment & Porn

In 55 B.C. Cicero (reportedly) said “The budget should be balanced, the Treasury should be
refilled, public debt should be reduced, the arrogance of officialdom should be tempered and
controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.
People must again learn to work, instead of living on public assistance”. You go Cicero!

March’s unemployment statistics were released this past Friday. Another 663,000 people lost
their jobs last month, bringing the total job loss for the 1st quarter of 2009 to 2 million. Reported
unemployment now stands at 8.5%. In related news the American Bankers Association reported
an increase in late loan payments. Really, people aren’t working and loan payments are being
made late – go figure.
A bunch of guys wearing short sleeved polyester shirts have figured out how to stop everyone
from elderly grandmothers to children at airports from bringing toiletries and juice boxes on
planes, but we can’t figure out how to fix this economic mess.

At least a dozen large law firms have laid off staff, including attorneys. The profit per partner at
these firms is in excess of $1 million, yet the times allow to disrupt the lives of families and
place people on the Government dole.

Companies aren’t making decisions. They are not hiring needed staff or making investments in
critical assets. Consumers aren’t spending either because they fear they may be next on the
unemployment roster. This week I know of two more peers who lost their senior level jobs.

What will fix this mess? People will take action when the fear of inaction becomes too great to
withstand. It won’t be the Government telling us that some statistic has improved, a change in
monetary policy, an increase in the stock market, or some other quantitative fact. The paralysis
will stop when the continued fear of doing something outweighs the fear of doing nothing!

On a similar topic and one I write about often, Secretary Geithner still hasn’t disclosed all of the
details about how the now named Public Private Investment Plan (“PPIP”) will work, nor do we
know how the remainder of TARP will work, or any of the other free money programs being
discussed. I can only imagine how they’ll resolve the various conflicts of interest that exist in
managing the PPIP.

Finally, as you know I am against giving the Government the ability to takeover any company it
pleases. In a similar vein – i.e., rights of the people – students at the University of Maryland
wanted to show a porno movie on campus. A Maryland legislator was less than enthusiastic
about this action and wanted to submit a budget amendment that would have a public university
forfeit state funding if it showed a pornographic movie on campus. In the case of U of MD, this
amounted to $424 million.

Don’t legislators have anything better to do. Public funds were not being used to show this
movie. If someone doesn’t want to see a porno movie, then don’t see it. What’s next, no
funding if a movie has violence or bad words. C’mon, where is some good old common sense.