I thought I would opine on JS Kim’s recent SD editorial- Breaking Bad With Big Bank CEO’s. You’ve probably read Kim’s work. Many like us lived what he has spoken of in this and other essays. In my experience, what JS Kim writes is very accurate.
I was mid level corporate officer; my name on the annual report; top salesman 4 years; the 4th largest shareholder of the bank, right behind the President, Chairman of the Board and a private investor.
We could have coined the term ’Muppets’ when referring to our clients. I never recall a single client referred to in a positive manner.
The only thought was how to extract the maximum yield without killing the herd. One stated policy was called “Bump Rate”.
Senior officers referred to that policy when renewing lines of credit. The loan officers jacked the rate when renewing a credit line, knowing that the client would accept that rather than move his accounts.
Many of our office meetings resembled a cross between a carney barker shilling cheap thrills rides and Torquemada questioning his victims.
We hit our clients with the highest rates possible when originating loans. The Preferred Lender Program was our tool to get the deal through underwriting and closed before a competitor was able to reach into our pockets and take the client.
The snarling and gnashing of teeth of bankers fighting over their prey made resembled hyenas going after a wildebeast.
By SD Contributor AGXIIK:
I thought I would opine on JS Kim’s recent SD editorial- Breaking Bad With Big Bank CEO’s. You’ve probably read Kim’s work. Many like us lived what he has spoken of in this and other essays.
In my opinion what JS Kim writes is very accurate.
I was mid level corporate officer; my name on the annual report; top salesman 4 years; the 4th largest shareholder of the bank, right behind the President, Chairman of the Board and a private investor.
I kept the bulk of my ownership in a house account, so the Board would not discover what I owned at the time.
That might have disturbed the order of things. LOL
Bank of Commerce strove to become the top SBA lender in the nation, hitting that goal in 1996. I was hired in 1988 as a foot solider to help the bank to accomplish that goal but left in 1992 to start my own business. While I was very successful in my job, the bank suffered a rough patch in the bank crash of 1989-1994. This dramatic change of fortunes forced me to make the decision to leave the bank. There were many reasons for leaving a 6 figure income, The primary of which were my lack of volume due to the crash and the bank’s internal credit culture. The change in underwriting crippled my volume. My time at the bank was on a short fuse so leaving was the best thing to do.
During my learning and high production phase, watching, hearing, then reading the pronouncements of the president and board was eye opening. In hindsight, many of our office meetings resembled a cross between a carney barker shilling cheap thrills rides and Torquemada questioning his victims. The highs and lows could leave you breathless and disoriented.
We could have coined the term ’Muppets’ when referring to our clients. I never recall a client referred to in a positive manner. They were usually seen as a milch cow. The only thought was how to extract the maximum yield without killing the herd.
One stated policy was called “Bump Rate”.
Senior officers referred to that policy when renewing lines of credit. The LOs jacked the rate when renewing a line, knowing that the client would accept that rather than move his accounts.
Incentivized to the tune of 6 figure salaries and bonuses, we hit our clients with the highest rates possible when originating loans. The Preferred Lender Program was our tool to get the deal through underwriting and closed before a competitor was able to reach into our pockets and take the client.
Reflecting on that process, the snarling and gnashing of teeth among banks fighting over their clients made me think hyenas going after a wildebeast.
In the haste to sign loan documents, the clients were calmly told ‘prime plus 4% was a good deal’. The closers were good; really good. They could charm the birds from the trees. Clients went along with these massively high rates, thinking they got a good deal.
The phrase ‘Sign in haste; repent in leisure’ should have been emblazoned on the door.
”Abandon all hope, ye who enter here” comes to mind.
At times prime rate was 8%, 9% and even 12%. A client could easily end up paying 12-16% on a Variable rate note. They didn’t realize it then, but they just got a very expensive ride on the Carnival Midway. How we convinced a client to accept a 13% rate is beyond me but we did get the job done. Worries over the consequences of rate bumps never occurred to us.
The secondary market for these loans was so richly valued that even SBA became aware of this disparity. The bank’s extraordinary yields resulting from these rates caused the SBA to prohibit loans from exceeding prime plus 2.75%. This was NOT done to protect the client however. It was done to reduce the yield from ‘obscene’ down to an acceptable level that I’d call ‘just so ridiculous’.
That 125 BPS difference seemed ok to the SBA. Thus our max rate then became prime plus 2.75%.
The aftermarket return on a loan priced at that level was prime plus 9% once the leverage of a 75% guaranty was factored in.
Instructions came from on high to maximize yields, always! Failure was not an option. If we lost a deal to a competitor who offered a 50 BPS savings we were expected to make it up on the next loan.
To say that we willingly marched to this tune was an understatement but the end goal, something only the top officers had in mind, was the sale of the bank for top dollar.
Once the bank hit the national ranks as Numero Uno, we were the player to contend with. Two years later US Bank purchased Bank of Commerce for $500,000,000. According to some sources this was the most richly valued bank merger in history. I exited my stock position a little to early but the funds helped start my business.
I lived precisely what JS Kim is speaking of in his essay.
Reflecting back over the last 25 years, while observing the present conditions of the banking industry, Kim’s essay describes an industry that’s has grown exponentially worse over the last 2 decades.