Post by the Hawthorne Hawkman, image from the Investigative Reporting Workshop blog.
There's a financially nerdy aspect of the Minnwest vs. Paul Koenig legal showdown that I don't think should get lost in the shuffle. Last year, I compiled quite a bit of information on Minnwest in a Johnny Northside post called "Minnwest Bank Metro - Breaking the Bank." There's quite a bit of technical stuff to digest there, but the key point in relation to this post is that Minnwest was found to have a dangerously high level of bad commercial debt in comparison to their total assets. That's a red flag for regulators.
The Investigative Reporting blog link above is helpful because you can drag the mouse over various points on their graphic to see exactly where Minnwest stood from one quarter to the next. The statistic shown there is slightly different. It compares the sum of troubled assets with the sum of tier 1 capital plus loan loss reserves. Basically, the amount of bad debt compared to two kinds of assets a bank has. I'm pointing out the obvious when I say that the higher ratio this is, the worse off the bank, its shareholders, and those who hold deposits are. Readers are encouraged to compare the blue line (national median) to the yellowish line (Minnwest's ratio).
The troubled asset ratio comes into play because thanks in part to Paul Koenig's and Pamiko's massive loan defaults, Minnwest Bank was put on notice by the FDIC that they had to improve those numbers--or else. That order happens to be exhibit 30 in our court case. Granted, Minnwest made a rash of high-end bad commercial loans, such as when they wound up holding the bag on the failed Ramsey Town Center. But let's take a look at that graph above and see what connections there are to Koenig's mass foreclosures in Minneapolis and St. Paul. In the case of the $1.3 million-dollar loan at 4652 Aldrich Ave N, the sheriff's sale was scheduled in the last quarter of 2009, coinciding with a huge jump in the troubled asset ratio that quarter. That was also the same quarter when 2420 Bryant Ave N ($2.5 million) had a sheriff's sale scheduled, although the intent to foreclose was filed one quarter earlier. The 1417 Logan Ave N property ($1.5 million) followed the same pattern as the Bryant loan. According to the Complaint documents, Koenig's St. Paul property ($1.1 million) was foreclosed in the same quarter of 2009 as well.
While I can't say with certainty when exactly the $6.4 million total default bomb exploded onto the chart above, there can be little doubt that the series of Pamiko foreclosures directly led to Minnwest being on the FDIC's naughty list. Watch out banks, this is what lending to Paul Koenig can do to you.
On an appropriate note, since this post was finished after midnight, it officially hit on the 1-year anniversary of Pamiko Comeuppance Day. Happy Pamiko Comeuppance everyone!