by Joseph Badal
He wondered briefly about the car he had passed after he left. A man and a woman. Older couple. Probably just taking pictures of his mansion. It happened all the time. People thought it was a friggin’ tourist site. He put the couple out of his mind. He had more important things to dwell on. Sanford Cunningham was due at Folsom’s offices at 10 a.m. to brief him on progress on the transition of ownership of Broad Street National Bank.
Folsom hated the damned banking business. Too many employees, too many branches, too many customers, too much regulatory oversight. And then there was all that bullshit about CRA. Banks had to adhere to Community Reinvestment Act rules and regulations that essentially required lending institutions to “give back to the community” by making loans to disadvantaged borrowers, among other requirements. “Fuck CRA,” Folsom muttered. He’d made a lot of money off the Feds, but they were all a bunch of bureaucratic pantywaists who were concerned about two things only: Their jobs and their retirements. These assholes had been asleep at the switch while loans were being made to anyone who could fog a mirror. Now they were covering their asses by demonizing the bankers and taking over perfectly good lending institutions. Good for him; bad for the bankers; bad for bank shareholders; bad for the taxpayers.
The Feds had “encouraged” him to buy Broad Street National Bank by threatening to not sell him any more loan pools. He’d been buying loan pools from the Feds at huge discounts, making tens of millions of dollars on each pool. Buy a $100 million pool at twenty cents on the dollar, or $20 million. Then strong arm the borrowers to pay up or forfeit their collateral. Even if he only collected $40 million from the pool, he’d doubled his money. The Feds were smart enough to realize how good the deals were they’d given him. Now they wanted him to come to their assistance. So, he’d forked over the bucks to buy this bank so the Feds wouldn’t have to come in and close it down, scaring the crap out of the average citizen and the politicians in Washington, and depleting the FDIC insurance fund. The last thing the FDIC wanted was another Indy Mac fiasco —panicked depositors lined up to get their money.
Well, he’d collect whatever loans he could, liquidate the collateral on those he couldn’t collect, and then liquidate the bank or sell the franchise to some big financial institution that wanted a branch footprint in Philadelphia—one of the big nine banks who were in bed with the Feds. Too big to fail, my ass, he thought.
He pressed the telephone button on his steering wheel and engaged his Bluetooth device, speed dialing Donald Matson’s cell phone number.
“Hello,” Matson answered in a hushed voice.
“It’s Gerald,” Folsom said. “Where are you?”
“In church. Hold on while I go outside.”
“Church, my aching butt,” Folsom groaned. “Probably begging God’s forgiveness for taking bribes to fuck over unsuspecting bankers and dumbshit taxpayers.”
“What was that?” Matson asked.
“Nothing,” Folsom said. “Probably the radio. What are your employees telling you about the Broad Street Bank transition?”
“Everything’s going great. Cunningham’s a real pro. He’s done this at least a dozen times now, right?”
“Three times since working for me; probably nine or ten times before that.”
“So far, so good,” Matson said. “The transition is seamless.”
“Good. I just wanted to make sure my friends with Uncle Sugar are happy. You check the safety deposit box?”
“Yeah, thanks.”
“I had to use a bigger box this time. The small ones couldn’t hold that much money.”
“Jeez, Gerald. Someone could be listening to this call.”
“What? The National Reconnaissance Office is using a billion dollar satellite to track your conversations while rag head terrorists blow up people all over the Middle East, and retarded assholes from Africa stuff explosives in their underwear. I don’t think so. Go back to church. Put a large contribution in the offering plate in thanks for your new found wealth. But do it in cash and don’t write it off your tax return. Wouldn’t want Uncle Sugar to question how someone making a hundred-fifty grand a year can afford to be so generous. Oh, and give me a call when the FDIC has another loan pool for sale. I’m awash in cash.”
Folsom punched the disconnect button without waiting for an answer and turned on his CD player. He cranked up the volume and pounded the steering wheel to the beat of Foreigner singing Urgent.
CHAPTER ELEVEN
Edward and Nick met again at the company’s offices on Sunday. They’d reviewed the loan package they were taking to Curtis Bank & Trust the next morning. The meeting was too important to take casually.
“I’ll provide an overview of the company,” Edward said. “Franchise situation, where we want to expand to, number of branches, that sort of thing. I’ll rehearse that part of the presentation again this afternoon. You’ll handle the financial statements and the three-year projections you prepared. Then I’ll go into detail about our present relationship with Broad Street National Bank, our loan arrangements with them, and what we need from Curtis Bank.”
“Who’s going to be at the meeting besides Van Snowden from Curtis Bank?” Nick asked.
“Van told me he’d have his chief credit and chief operating officers with him.”
“I’ll make six copies of the presentation. That will give them an extra copy to send to their credit department for analysis.”
“And we’ll need copies for the meetings at Pennsylvania Industrial Bank and Philadelphia Savings & Trust. You might as well make all the copies at once.”
“You feeling okay about things?”
“Yeah, Nick. Of course, I don’t like the uncertainty, but if we can’t get financing, with our financial situation, who the hell can?”
Nick nodded. “How’s Katherine holding up?”
“Better than me. Most people see her as this quiet, gentile little lady. They have no idea how tough she is. I ought to call her just to say hello. Betsy and I usually take her to brunch after church on Sundays. Obviously, we didn’t do that today.”
“By the way, the staff did a hell of a job diverting the weekend receipts here. We’ve got $558 thousand and change in cash, credit card receipts, and checks sitting in the vault. We’ll clear the credit card receipts and checks through whichever bank we move our accounts to.”
“Good. That, plus the $3 million in Broad Street Bank should sweeten the deal for Curtis Bank.” Edward leaned back in his chair and stared at the ceiling for a moment before looking back at Nick. “Katherine tells me a few of our restaurant managers were concerned about Broad Street Bank. They know what’s going on in the financial markets and are smart enough to realize we could be impacted. I’d sure like to close a deal with another bank before rumors start scaring our people.”
“Like you said, if we can’t get financed, who can?”
Edward put on a brave smile. “Oh, that makes me feel so much better.” He laughed, although it felt strained. “I’ll pick you up at your home at 7:30 in the morning. That will give us enough time to get downtown, even with rush hour.”
* * *
After Nick left his office, Edward called his mother at home. She answered on the first ring, sounding out of breath.
“You okay, Mom?”
“Fine, fine. What’s up?”
“Sorry about brunch. I have to get ready for the meetings with the bankers tomorrow.”
“Son, I understand. Besides, Paul and I went out for a while.”
“You and Paul. That’s interesting.”
Katherine chuckled. “Don’t read anything into it. We had some business to discuss. Remember, we’re old friends.”
“You know he’s nuts about you,” Edward said, a mischievous lilt in his voice, thinking how Paul had wasted years waiting for Katherine to give him one bit of encouragement.
“Now, do you
have anything else you want to discuss other than my social life?”
“No. Just checking in.”
“Call me after you meet with the banks.”
“You can count on it. Wish me luck.”
“You don’t need luck. You’ve got everything going for you.”
MONDAY
JULY 18, 2011
CHAPTER TWELVE
Curtis Bank & Trust’s headquarters occupied the first six floors of an eighteen-story concrete and glass structure on Walnut Street, a couple blocks west of Broad Street. Like most downtown Philadelphia banks, it presented a solid, conservative image. Van Snowden’s office was on the first floor. Edward and Nick arrived ten minutes early, were shown to a conference room and offered coffee and water by Snowden’s assistant. They accepted bottles of water and took two of three seats on one side of a rectangular, dark mahogany table. Snowden entered the room a couple minutes later, with a man and woman in tow. Snowden was a six-foot-two, fair-skinned blond with an erect posture that spoke to his military background. He wore a tan suit, light-blue shirt, and yellow tie. Edward knew he had graduated from Penn and gone on to Yale for an MBA. He looked the part of a Philadelphia banker.
Snowden introduced Chief Lending Officer, Daniel Blake, and Chief Operating Officer, Veronica Stangler. Blake was a bantam rooster type, with a confident air and a sour look to go along with his blue suit, red power tie, and starched white shirt. He seemed to like being the senior credit guy in a bank, where successful business people came in, hat in hand, to ask him for money. Edward thought he’d have to set the guy straight—after they negotiated a deal with the bank. Stangler was a dark-haired, olive-complected woman of medium height, who appeared to be warm and competent in her light-gray suit, off-white blouse, and wire glasses. Edward liked her right off.
The bankers took seats across the table from Edward and Nick.
“What can Curtis Bank & Trust do for Winter Enterprises?” Snowden asked.
“Thanks for seeing us,” Edward responded. “Van, you and I have had several conversations over the past few years about your interest in moving Winter Enterprises’ business to your bank. As you know, we’ve been with Broad Street National for a while now. They’ve taken good care of us, so we had no reason to move our business. Obviously, with the FDIC taking over Broad Street and selling it to Folsom Financial, the situation there is up in the air.”
Snowden laughed, “That’s an understatement.” Stangler laughed along with Snowden; Blake’s sour look didn’t change. Edward smiled politely.
“Anyway, we feel that now would be a good time to seriously discuss your interest in Winter Enterprises’ business.”
Snowden grinned. “We’re pleased you’ve elected to give us this opportunity. I see you have a presentation with you,” he said, pointing at the stack of packages on the table in front of Nick. “Why don’t you go ahead and start?”
It took Edward and Nick a little over an hour to complete their presentation, during which the bankers interrupted them a half-dozen times to clarify points. They then segued into what they needed Curtis Bank to do for them.
“We have a $20 million master note at Broad Street National, secured by $50 million in real estate, all of which are our restaurant properties. We want to roll the balance of that note into a $30 million master loan facility that will allow us to finance another seven locations over the next twenty-four months or so. We’ll pay down the loan over five years, and will finance future expansion with internal cash flow. We’ll secure the loan, regardless of the balance, with all of our real estate properties. I think—”
Snowden suddenly stood and looked at Edward. “I’m going to suggest Nick finish the presentation for Dan and Veronica. Edward, I think you and I ought to continue this discussion in my office.”
Nick looked confused. Edward shot him a calming smile and rose from his chair. He didn’t know what was happening, but he figured Snowden wouldn’t have interrupted him unless there was a good reason. He and Snowden had a friendly relationship that spanned a dozen years, so he wasn’t particularly upset by the interruption. He followed the bank president out of the conference room into an office at the far end of the floor.
Snowden’s office was large: Twenty by thirty feet, Edward guessed. A red and blue Persian carpet lay on the wood floor. A large desk sat at the end of the room, beneath a bank of windows overlooking Walnut Street. Snowden pointed to a plush leather chair on one side of a coffee table and took the opposite chair himself.
“I apologize for breaking up the meeting that way, but I decided wasting any more of your time would be unfair to you.”
Edward took a deep breath and let it out slowly. “Wasting my time?”
“What I’m about to tell you can’t leave this room; I’m not quite ready to quit banking and I’d be out on my ear if the regulators learned I’d talked to you. But you need to understand the current banking environment. Okay?”
“Okay.”
Snowden exhaled loudly. “I was just a young banker in the early ‘90s, but I remember what the regulators and the Resolution Trust Corporation did to the banks and to their business clients. As bad as things were back then, it is even worse today. Bear with me; this is going to take a little time. But what I’m telling you is a roundabout way of turning you down for your loan.”
Edward’s face turned hot. “No disrespect, Van, but making me suffer through a long-winded story, where I already know the ending, is the height of patronization. I—”
Snowden stopped Edward. “I understand, but this is for your own good. If you don’t understand the present banking environment, you’ll be going into battle unarmed.”
Edward met Snowden’s gaze and, after a second, nodded and said, “I apologize. Please go ahead.”
“First of all, the regulators have issued cease & desist orders and regulatory letters to us, and to banks all across the country, ordering us to not make any more commercial real estate loans. That’s why we can’t even consider your loan request. The regulators believe that commercial real estate values are going to deteriorate and that any exposure to commercial real estate is too much. Earlier this year, Elizabeth Warren, the chairperson of the TARP Congressional Oversight Panel, said, and I’m paraphrasing, ‘We now have 2,988 banks with dangerous concentrations in commercial real estate lending.’ She also said that by the end of this year, about half of all commercial real estate mortgages will be underwater. What effect do you think comments like her’s have had and will continue to have on the way the regulators treat banks?”
Without waiting for a reply, he continued, “We have a loan delinquency rate of less than two percent, but the examiners don’t seem to care. To make matters worse, they ordered us to raise our core capital ratio.
“To put things in perspective, the current written guidelines for a well-capitalized bank are set at a six percent core capital ratio and a ten percent risk-based capital ratio. Before the market meltdown, the ratios used to be five percent and eight percent. The standards are relative to the relationship between the bank’s capital and its assets. This sounds complicated, and I’ll admit, is a bit convoluted. Loans are treated differently than securities, for example.
“But anyway, the changing standards are creating a vicious cycle. As community banks reduce their investments in commercial real estate loans, as the regulators demand, the less income the banks generate, meaning lower earnings and thus more difficulty in building additional capital.
“Our ratios are eight percent and twelve percent, significantly above the guidelines. But the regulators have now ordered us to raise our ratios to ten percent and thirteen percent. Why? I don’t have a clue. Our examiner, when I asked her about this, in effect, told me it was none of my business how she made the decision.”
“Couldn’t you appeal?” Edward interjected.
“To whom?”
“Her boss?”
“Been there, done that. The guy was frothing at the mouth over me questioning one of his examiners.”
“Then how about our Congressional delegation?”
“Those gutless wonders are less than worthless. Ever since the Keating Five back in 1987 got into trouble, not one of those guys would stick his neck out to intervene on behalf of a banker in a pissing match with a regulator. Besides, they’re demonizing bankers. Haven’t you heard? The Great Recession is our fault.”
“What was the Keating Five?”
Snowden smiled at Edward. “Sorry. You were probably still in elementary school in 1987. The Keating Five was named for Charles Keating, Chairman of Lincoln Savings & Loan Association. Five U.S. Senators were accused of intervening in 1987 on behalf of Keating’s bank, the target of a regulatory investigation by the Federal Home Loan Bank Board. I don’t think the Senators ever thought they were doing anything wrong; they were just trying to get the regulators to back off a constituent they thought was being unfairly attacked.
“But politicians have a long memory when it comes to political liability and no one wants to be accused of interfering in the regulator’s witch hunt against the big, bad bankers. The press, the President, Congress—they’re all demonizing the bankers.”
“It sounds like things have gone too far the other way,” Edward said.
“It doesn’t seem to matter. When it comes to the regulators, this isn’t a democracy. As Sol Levin told me, ‘I went to bed in America and woke up in the USSR.’ ”
“What happened at Broad Street National is unconscionable. It’s a crime. The federal government stole that bank from its rightful owners, which included thousands of individual shareholders in Pennsylvania. Sure, the bank had some real estate loan problems, but nothing warranting the Feds going in and taking it over. I’ve talked with some of their people; I won’t tell you who, but I have absolute confidence in the people I’ve talked to.