posted on Jun, 28 2009 @ 01:50 AM
Hunka- Yes, I am very familiar with Silverton. They were the major clearing house for wires, etc. for almost all of the small community banks in
Georgia. And, I am not sure how easy it has been for these small banks to find a replacement for Silverton.
Silverton was a mess, though. They provided a lot of the back office support to these small community banks, but they also packaged up big loans -
like $50M real estate loans for large real estate developments, like hotels, etc. Their underwriting and due diligence, from what little I saw, was
practically non-existent, and frankly, a complete joke. They were giving $50M hotel loans to non-American citizens (good luck trying to sue in the
event of default), and other nonsense I won't even get into. All I will say is that they were definitely not doing their due diligence at all.
Regarding Providence, yes, many of these properties and developments around Atlanta - especially Henry County - are now owned by banks.
Now, this would be quite simple you would think - Just sell the property at a loss or discount, and take a loss, and move on with your life. The
banks can't do that because they have soooo many of these properties - and they can't afford to take a huge hit all at once. So they freeze lending
- in Atlanta, most banks have frozen lending for more than a year now - and try to wait it out and sell these properties one by one until the market
improves. It's a joke. So the credit markets are frozen until these banks can figure out what to do with all of this crappy housing and lot
inventory that they own. They can't sell it at a loss, because they don't have the cash reserves to sustain a hit. And they can't lend any more
money, because they need the cash to pay for the projected losses when they do in fact sell this real estate inventory.
So, basically, you have all of these banks sitting on all of this property - land and houses primarily - and they can't sell it at a discount because
they are bleeding already. They aren't collecting any interest income, because the home builder by this time has filed bankruptcy. So they are
stuck. So bank management just plays the "let's slow walk" game, and tries to ride this recession out hoping that the economy and real estate
market will improve. Meanwhile, that's what every other bank is doing, so nothing will improve until this gets straightened out at the banks
themselves regarding this backflow of housing inventory.
The regulatory requirements for capital reserves are stiff. These small banks don't have the kind of cash reserves on hand to sustain these kinds of
losses. They can't raise cash in this environment because they can't find investors.
To make matters worse, most of these CEO's and senior bank managers are a bunch of blathering idiots. And do pardon me for being so blunt. They
created this mess by lending loosey-goosey, then they wonder why they are in this situation. Meanwhile, they earned record personal incomes and
bonuses for the past 7-10 years or so, so they got rich in the process. Time to bail. Who cares anyway? Most of these CEO's have never had to deal
with a crisis this large, and don't have the management skills to manage through this downturn.
So what do they do? They hire some stupid consultant that says, "You need to cut your staff". So they shave a few - maybe - hundred grand off
their bottom line, and --- now they have a skeleton staff dealing with these massive problems and they have had a major brain drain of the bank
officers that had specialized knowledge of the bank's clients, procedures, etc. - all gone now. So now you have even fewer people working on these
problems, and the ROOT ISSUE - which is dealing with these real estate issues, is not solved until the FDIC shows up at your door.
It's truly a beautiful situation.