Thursday, February 24, 2011

Koenig's Impact on Minnwest Bank

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!

7 comments:

  1. C'est la vie -

    How many federally insured banks do we need? Especially greedy ones that can't seem to mind their business and play by the rules.

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  2. At least entertain the idea that Minnwest created a house of cards and Koenig's timing just SUCKED. Koenig initiated his loans with Minnwest AFTER their default ratios were an issue. When the FDIC put the crunch on Minnwest, Minnwest had to reduce exposure to commercial loans tied to residential real estate. Sorry Pamiko, but we need our money back.

    When the bank said "We're out of money" what was the guy supposed to do? Nobody like a business that's going down. It's always ugly. Again - Koenig's no angel - BUT Minnwest MUST share as much (maybe more) blame as Koenig.

    Your best point is that this is Koenig's 2nd high profile disaster in NoMi. He needs to get out of the batters box or there will likely be a strike-3.

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  3. We support you in focusing your efforts on real people with real problems and concerns. We support you in not responding to made up identities for hateful people to hide behind. Please tell Joann the community supports you in doing your job with real people with real problems and not fake identities with ulterior motives.

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  4. Anon 8:49, I've heard this argument before, whether it's from just you or several anonymous commenters. I have not been swayed. I'll grant you that the chart above clearly indicates Minnwest had problems before and after Koenig/Pamiko with regards to its ratio of troubled loans vs. deposits and capital.

    But I read the order from the FDIC. That specifically said that Minnwest had to fix the problem of its derogatory credit load vs. assets and deposits. Nowhere in there did I find a clause that said, "Even if a loan is performing well, you have too many of 'x' type of loans on your books, and you have to get rid of them." Furthermore, one would think that if Koenig's loans WERE performing well, and Minnwest STILL had to get them off the books, that they'd be able to find another investor to take them on.

    I've talked to commercial bankers about the kinds of products used here. They usually contain some kind of clause that allows the lender to initiate a significant increase in the interest rate. That clause could be things like tax delinquencies, poor maintenance of collateral, additional liens placed on the collateral without the knowledge or consent of the primary lien holder, or delinquencies on other lines of credit. Koenig was guilty of many, perhaps all of these things.

    What those lines of credit typically DO NOT have are clauses that allow the creditor to arbitrarily raise the interest rate because the creditor is experiencing difficulties. While it's true that on one loan Minnwest dropped the debt limit, they increased it on another line of credit for Pamiko. So it doesn't even appear as if Koenig can rightly claim that he was about to turn the corner on these properties and loans, if only Minnwest would have given him more time.

    Minnwest certainly bears some of the blame here, but not as much or more than Koenig. If you want to persuade me that Koenig's problems were just a matter of bad timing, then point to something specific I've missed or don't have access to. What, in detail, backed up by Koenig or Minnwest documents, happened? Where in the loan docs to Pamiko did it say that Minnwest could alter the loans arbitrarily? Where in the plan with the FDIC is Minnwest told to lower their commercial debt load (even the loans performing well)?

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  5. I just sent a fb message to Robert Lilligren, who has become a facebook friend of that anonymous identity. I informed him of the story behind the anonymous profile. Told him he should make an informed decision to follow such a profile or not.

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  6. Jeff - I'd encourage you to research a banks reserve requirements. A typical healthy bank with $1 in assets (checking, savings, etc) can lend $9. So To secure Koenig's $4,000,000 Minnwest only needed around $450,000 in assets. When the FDIC identified Minnwest had a problem, their advance rates took a severe hit to the toon that Koenig's loans required $2,000,000+ ----- overnight. To compound the problem people were holding onto cash v. depositing the funds into savings. So again, Koenig's timing SUCKED...

    If you want to challenge me on this....I'd invite you to schedule a meeting with a VP level at Minnwest and have them go on the record and deny there's any truth to my claim. Hell - I might even be a fly on the wall at that meeting. . .

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  7. North Mpls Posse
    http://www.startribune.com/local/west/116959863.html

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