Notes on the State of the NJ Credit Markets

I attended a Turnaround Management Association (TMA) panel discussion tonight. My compliments and thanks to the TMA for a well-run, well moderated and well attended event. The following banks were represented on the panel of speakers:

  • Sun Bank Business Credit
  • Lakeland Bank
  • Santander
  • Valley National Bank

Some of my takeaways from the discussion:

  • Bank portfolios are clean
  • There is much more available credit than there are good deals
  • Banks are “fiercely” competing for loans with themselves and other financial organizations
  • Banks are getting very aggressive with loans that they sense are in trouble. They are “purging” them fast by any (legal) method possible – prior to the loans becoming TDR’s. One banker said that they monitor loans much more frequently than they have in the past to catch problems quickly
  • This contrasts with one of the other banks that said that they were somewhat worried about their own portfolio because they had cut back on internal monitoring staff and reporting
  • The economics of holding onto bad loans are not favorable because of capital coverage ratios for non-performing assets. And, even though finding new credits is a challenge, banks are off-loading as many questionable loans as fast as they can
  • The banker that said that his institution had cut back on monitoring thought that there would likely be more borrower fraud issues in the future as debtors figured out that they could “game the system”
  • Off-loading distressed loans is a robust business as many secondary lending organizations are looking for distressed paper and distressed companies – especially those with real estate assets
  • Work-out deal flow is much lower than in prior years and will remain low for the foreseeable future