Community banks and similar institutions often run into problem assets for which they are unprepared to manage. Often, long-time loan officers and bank managers consider CRE and other asset sales as an admission of defeat and failure, rather than as a normative part of the process for non-performing and charged-off loans.
Below are questions that may be useful for any asset manager to ask themselves about selling CRE loans or other assets.
Admittedly, there are some accounting gymnastics to be done by unhealthy institutions because of FDIC accounting practices. Some large nonperforming assets cannot be sold for their true value because of how off-balance it may throw certain ratios. However, should FDIC considerations completely negate the use of CRE or other asset sales? Would the sale of other nonperforming assets free up the right capital or help balance ratios in other ways so that the worse loans could be sold?
Asset managers at banks and other institutions have to wear many hats and often take on roles for which they may not be entirely prepared. For some, asset sales represent a hard paradigm shift from the admission of failure or defeat on a loan rather than a part of the process in handling nonperforming or charged-off assets. Though we want our bankers to typically think in specific ways so as not to extend undue risk, sometimes keeping certain business processes as closed options may prevent both future profits and good, productive work.
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