Local consultants to the banking industry have just published a book on credit training. Designed as a manual for bank employees, it covers topics including analyzing borrowers”™ finances, drafting a loan agreement, understanding the banker”™s responsibilities and trends in commercial loan activities.
The book, published on May 31, is written by White Plains residents James Sagner and Herbert Jacobs and is titled “Handbook of Corporate Lending: A Guide for Bankers and Financial Managers.”
“The biggest trend right now is that the banks are so scared about making bad loans and are under such pressure from regulators to build up their capital that they don”™t want to lend,” Sagner said.
“They don”™t want to lend for personal loans, for real estate loans and they don”™t want to lend to companies.”
Sagner was a senior banker at First Chicago Bank ”“ now part of JPMorgan Chase ”“ and teaches at the University of Bridgeport and the University of North Carolina. Jacobs is also a former banking executive and teaches credit-training classes at New York University. The authors also operate Bank Credit Training Partners, a Peekskill, N.Y.-based company that offers credit-training classes for banks.
Pressured to make ”˜perfect”™ loans
Sagner said many banks are still so cautious it is difficult for even healthy businesses to borrow money.
Banks took such a beating over what happened in 2008 that “they are turning up the pressure to only make perfect loans, which you can”™t really do. That”™s just not realistic,” he said. “Banks have to take the risk of making loans and occasionally making a bad loan. It”™s gonna happen. Banks have to get into what their primary mission is, which is to lend, so that the economy can grow and generate many jobs.”
The authors say banks also have to continue to work with Congress to get the regulators to be not quite so demanding in terms of the quality of loans and the amount of primary capital that banks have.
Sagner said what some banks need to do is make more informed corporate-lending decisions. “Certainly in going forward, we need to have more informed lending decisions,” he said. “I am still distraught over the fact that one of my favorite banks ”“ Wachovia, now part of Wells Fargo ”“ collapsed because of the credit decisions. And so we (must) stop stuff like that. Taxpayers shouldn”™t be required to bail these banks out. And we (must) do everything in our power to make sure it doesn”™t happen again.”
”˜Would you lend money to these people?”™
The authors also urged banks to reinstitute in-house formal credit training programs for employees. They pointed out that many banks nationwide have stopped offering formal such classes for employees as a way to cut overhead. And instead, many banks now just have new employees shadow experienced bankers to learn in a more informal way. The authors say that”™s a mistake.
“Many banks over the last 10-12 years or so have cut back on overhead and they decided that it wasn”™t a good use of their money to offer credit-training programs,” Sagner said. “I can”™t find any existing credit-training program in any major bank nowadays. That”™s a shame because bankers become bankers after training.” Several universities including University of Wisconsin-Madison and NYU offer courses on credit training. Ratings agencies like Standard & Poor”™s in New York City also offer short courses but they are clustered in major cities, often making it difficult for many bank employees to attend.
Sagner explained that their book tries to get down to the nitty-gritty details of making corporate loans in the current climate, how to evaluate companies seeking loans and what to do after making a loan.
“Our book is basically a text in cases. We look at actual cases and companies using public documents and Securities and Exchange Commission filings and so on. We ask the readers: Well, would you lend money to these people? Why or why not? What are the things you should be looking for when you consider making a loan,” he said.
In their book, Sagner and Jacobs also talk about analyzing credit and writing covenants to protect banks. “There is a whole process involved with analyzing credit, where you get into things like ratios, common-size balance sheet, models of performance and the likely future performance,” Sagner said. “Then you get into the issue of credit agreement: What should the agreement between the borrower and the lender say? What protects the lender and what do you want to write into the credit agreement?”
He also pointed to the need to constantly monitor the client”™s status: “If the bankers aren”™t doing their job and aren”™t maintaining constant contact with the company, the situation can change radically in a very short time. ”¦ The banker should be on top of the situation at all times.”
Sounds terrific! As a not for profit community development lender making SBA small business loans, we would love to know more, but can’t find either the book or the company on line. Hope the authors see this and reach out to us: 914 747 8020 extension 12