They are called "troubled-asset divisions." Even though just about every bank has them, they have become, in a recession-strapped economy, a much more critical element to bank survival today.
And many local banks, concerned with troubled commercial real estate portfolios and non-performing assets totaling hundreds of millions of dollars, have already beefed up their troubled-asset divisions, or workout groups, and are looking to recruit experienced specialists in the field from places such as Texas and Louisiana, where oil-based economies have bottomed out and begun the climb back to health.
Henry Berliner, president at Annapolis-based Second National Bank, says his bank's troubled-asset division has gone from six people to 12. The bank had more than $160 million in non-performing assets at the end of 1990, he said, and it has already socked away $28 million in reserves, gauging that to be the most Second National should lose on loan defaults.
The bank has brought in a variety of skilled people to work in the troubled-asset division, Mr. Berliner said, including attorneys, accountants, property managers, real estate experts and, with the influx of government regulators in the banking industry these days, a person who used to work for the Resolution Trust Corp.
But unlike other banks, Mr. Berliner said, Second National has decided to have its troubled-asset division report directly to him instead of to the lending division.
Second National officials feel this is necessary because the people who made the bad loans might be inclined to hold onto them too long to prove their worth, thus creating a possible conflict of interest.
"By reporting to me, we send out a signal that there is a definite urgency to this situation," he said.
Second National is not the only area bank that has strengthened its workout groups. Others with troubled loan portfolios, such as Crestar and Sovran, have also looked to troubled-asset specialists to assist them in this crisis.
Some banks refuse to even discuss their commercial loan portfolios or non-performing assets, perhaps an indication of how serious the problem has become.
At Citizen's Bank of Maryland, Paul Brown, a senior vice president, says that the company hasn't hired anyone to help with problem loans but has turned "to four or five [senior employees] with 80 years real estate experience" to handle the extra duties associated with troubled loans.
"If you can count [your troubled commercial loans] on two hands, you can aggressively manage them," he said.