Job Watch: finding survival tactics

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Ben Jacklet
Monday, July 27, 2009

For the second month in a row, we are scrambling to revise a story about a great local business that has been harder hit than expected by the continuing recession.

Last month it was Pendleton Woolen Mills, a 100-year old Oregon icon that surprised us by announcing that 45 employees would be laid off as we were preparing to put our August issue to bed. This month it’s a local bank to be named later that has been dealing with hard-nosed FDIC regulators scouring through every record, email and report they could unearth. My conversations with the CEO went from fascinating to ominous over the course of the past several weeks, and we agreed that running a story before the matter is clarified with a formal FDIC report would be unwise for the magazine as well as the bank.

Both of these stories were slotted for our Tactics page, where we explore a company and its leaders, what they are facing and how they are proceeding and why. I’m a big fan of the page, because it strives to dig deeper than the usual business profile by shaving off the fluff and honing in on what is crucial. Unfortunately, more and more of these pieces are reflecting the harsh reality that for many businesses, the over-riding goal for 2009 is simply to remain in business. Our research editor Brandon Sawyer quipped the other day that maybe we should rename the page Survival Tactics.

This recession is nowhere near over, and it will not end until the banks have cleaned up their books. This is far easier said than done. That’s why I used the word ominous earlier to describe my recent discussion with the banker. He was in the room last week when senior FDIC officials met with top executives from a dozen local banks, and he said even the institutions he had thought were doing fine have weaknesses, and others “seem to have exhausted their capabilities.”

The last thing Oregon needs is another bank failure. The FDIC acted aggressively earlier this year to shut down Pinnacle Bank, Bank of Clark County and Silver Falls Bank, and the aftershocks continue to rattle the economy. Since then months have passed without a local failure, even as local banks report continued losses. Unfortunately, the FDIC has bailed out enough banks that it needs money to replenish its fund, and the easiest way to bring in more capital is by downgrading banks. The lower a bank’s rating, the more it has to pay to the FDIC. I’ve also noticed that bank failures tend to come in geographic clumps. On July 2 the FDIC seized six banks in Illinois. On July 24 the agency shut down six banks in Georgia. Time will tell whether Oregon will manage to sidestep a similar massacre.

Regional banks have not crashed and burned as magnificently as the Bear Stearns and Lehman Brothers of the world, but they did follow the money into Portland condos, Bend subdivisions and rural ethanol plants. Now they are left with nonperforming loans that the FDIC will not allow them to hide. They are employing every tactic available to them to keep their doors open and to continue lending if possible. No one should underestimate the gravity of the challenges they still face.

 

Comments   

 
Devin Davis
0 #1 Director of MarketingDevin Davis 2009-07-29 12:05:38
The recession has hit a lot of companies hard - that's obviously proven true in Bend, where we're located, as well. Those subdivisions you mentioned are standing empty in some places, but it does seem that things are turning around in others.

I'm certainly not suggesting that the recession is over - but maybe, just maybe, the worst is?

I hear murmurs of home sales picking up across the country (and even here in over-built Bend) which has to be a good sign.

Hopefully we can see the unemployment rates drop, and see some of those regional banks start lending - after cleaning up their balance sheets.

In essence, despite what may BE the case...I kind of hope you're wrong on this one, Ben.
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Ben J
0 #2 Ben J 2009-07-29 12:18:48
Well put, Devin. The Fed's beige book report is also saying the worst is behind us, so you are not alone in seeing it that way. I agree the worst is probably behind us, but I also don't like some of what's ahead of us.
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John Helmick
0 #3 Gorilla Capital, CEOJohn Helmick 2009-07-29 18:28:00
Foreclosure sales is all we know, but we know them very well as we track over 20,000 foreclosures a year and buy over 200 houses at foreclosure auction. Our company tracks every foreclosure in 15 Oregon counties. We maintain a substantial database on foreclosures. We know how many notice of defaults are issued, how many of those notices result in a foreclosure auction (between 15% and 40%) and how many of the foreclosure auctions end in the bank taking the property back (between 78% in 2007 and 99% in some counties in Fall 2008) and how many of the properties not going back to the bank are sold to Gorilla and our competitors. What I do know is that the number of foreclosure starts has held steady or declined in 11 of the 15 counties where we have operations, the percentage of properties that go all the way through to foreclosure auction is starting to decline, and The percentage of houses that are going "back to the bank" is decreasing and is now at about 90%. We believe that the foreclosure market may be cooling off some although there still are tremendous bargains and volume that is a multiple of what it was in 2007 . Many predict that real estate will lead in the recovery, but real estate is not going to be able to recovery until we get this inventory of foreclosure homes sold to home buyer occupants. So, looking only at foreclosure (as it is the only thing I know) I agree with your assessment that the worst is behind us.
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Ben J
0 #4 Ben J 2009-07-30 10:58:41
That's interesting, John. It sounds like your information differs from RealtyTrac's, which shows a continuing spike in foreclosures in Oregon's top markets. How does your tracking methodology differ from RealtyTrac's?
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Ingrid C
0 #5 foreclosuresIngrid C 2009-08-07 14:00:32
I have a good friend that has a subdivision in Tennessee and has not sold a lot in 18 months.
She has continued to make intrest payments and on time even though it has been a blood bath.
Evidently this type of loan is up for renewal every year and She was just informed that Her property will go into foreclosure.
She has spent hundreds of thousand of dollars developing the property along with the payments only to have it taken away.
They will probably short sell it and come after Her and Her 84 year old Father's house.
How can this be fair?
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