EFFECTIVE DECISION MAKING

    

 

Making decisions about the disposition of non-performing assets is very difficult: Inadequate information on which to

base decision Fear of trouble

Fear of criticismFear of retribution—loss of job or position

or being reprimandedFear of giving something away

   

 

Effective decision making requires three basic elements: Clear and precise delegations of

authority Written, detailed policy and

procedures Documented approval process

   

 

Effective Decision Making

Authority to make asset related decisions should be delegated to descending levels of management within the organization, depending on the size and magnitude of the asset and related proposed action.Routine decisions should be made routinely and by the use of individual authorityCredit Review committees should be encouraged as opposed to individual decision making on large and complicated matters

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Delegations of Authority Relating to Closed Bank Management

Authority is delegated and re-delegated in smaller amounts to descending levels of management and responsibilityUltimate authority with board of directorsBoard delegates a certain level of authority

to LPS DirectorLPS Director re-delegates his authority to a

committee made up of senior LPS managersLPS separately re-delegates some of his

authority to Liquidation Team Manager

    

 

Types of Delegations of Authority specific to asset disposition decisions:

Compromise and settlement authorityAbandon any assetCompromise any assetRelease guarantors on any assetAbandon collateral to any assetDispose or sell any assetApprove settlement or any claim or

litigation concerning any asset (in concurrence with Legal Counsel)

    

 

Types of Delegations of Authorityspecific to asset disposition

decisions: Compromise and settlement authority (cont’d)

Take all other appropriate action related to assets in closed banks

Book Value Limitation:This authority extends only to those assets that

have a book value of __________or less However:

Regardless of the limitation above, to take any action where the amount of loss to be realized does not exceed 15% of the total of principal and accrued interest

    

 

Types of Delegations of Authority

specific to asset disposition decisions:

Sale of Real Estate or Other PropertyOn an all-cash basis or on terms if the

appraised value is __________or lessRegardless of the above limitation, to sell

real or personal property on an all-cash basis for a minimum of 100% of appraised value

All sales shall be conducted according to the policy for sale of real and personal property

    

 

Types of Delegations of Authorityspecific to asset disposition

decisions: Disbursement of Funds

For the protection of any asset not to exceed ________per calendar year

In accordance with contractual obligations arising from loan commitments, partially funded loans, letters of credit

To remove prior liens at or prior to a senior creditor’s foreclosure sale whenever the total amount of prior liens is 60% or less of the property’s appraised value

To pay sales commissions and closing costs, provided that the total amount paid does not exceed 10% of the sales price

    

 

Types of Delegations of Authority

specific to asset disposition decisions:

Release Collateral SecurityFor 80% or more of appraised value

whenever such release does not compromise a claim against a borrower

Initiate Foreclosure on Collateral Restructure Debt Sell Loans

    

 

Written, Detailed Policy and Procedures: These are the rules by which assets

are managed, such as:Financial statements requiredReal estate appraisalsListing priceForeclosure bid amountBroad marketing effortEtc.

    

 

Documented Approval Process I recommend a system based on the FDIC

“case” memorandum system. A case is a written memorandum to the appropriate level of authority seeking approval for an action, formatted as follows:ProposalDescription of asset and situationWhy the proposed action is the best alternativeReview of lesser alternativesSubstantiation of proposalCitation of policy and procedure as applicableCitation of relevant delegations of authority

    

 

Written case system provides: Clear paper trail of:

Work done on assetFinancial analysisCollateral valueAlternativesCompliance with policy and procedure Applicable delegation of authority for

decision being madeA certain discipline in the work process