News and notes from around town:
• A longtime North Lawrence business is now closed, in what may be a sign of how commercial lending standards in Lawrence are tightening. Webster’s Inc., a modular home dealer that has been in business for the last 44 years, has suddenly shut down. Jonathan Becker, a Lawrence attorney for Webster’s, said the closure came about after Lawrence-based University National Bank called in the note on the company’s financing.
Becker declined to go into any detail about how business had been at Webster’s recently or other factors that led to its loss of financing. But he did note that University National Bank is a lender that previously has entered into an agreement with bank regulators. As we previously reported in June of 2009, University National Bank entered into an agreement with the U.S. Comptroller of the Currency outlining specific restrictions the bank must adhere to during the coming months, and perhaps, years. Among the restrictions were to limit loan volumes until the bank corrects “deficiencies in asset quality,” in turn returning the bank “to a satisfactory condition.”
“They’re trying to clean up their lending operations by reducing their loans,” Becker asserted. “One of the ways to clean up is to start calling loans to reduce your loan portfolio. That is a fairly typical thing. Unfortunately, it affects the businesses that have borrowed the money from them with the expectation that they would be able to borrow the money through the length of the term of the loan and have those loans renewed based upon proper payments.”
But Todd Sutherland, president of University National Bank, said that is an inaccurate characterization of what has transpired. He said he can’t comment on specific lending relationships, but said the bank’s dealing with regulators “are not related at all” to the situation with Webster’s.
Sutherland did confirm University National remains under an agreement with the Office of the Comptroller. He said 60 percent of the banks in the Office of the Comptroller’s Western District are operating under some sort of agreement with the regulators. He said University National continues to make good progress on reaching the benchmarks spelled out by the regulators, but he said it was still too early to estimate when the bank may be released from the additional regulations.
“We have improved the numbers,” Sutherland said. “We would like it to be quicker, but given the economic situation it is difficult to move stuff. But we’re making definite progress.”
Regardless of all the ins-and-outs of banking and financing, the closing of Webster’s likely is affecting some people who were in the process of buying a home from the company. Becker didn’t comment on how many people may be in that situation, but he said the uncertainty about Webster’s future is likely to continue for sometime.
“The only thing I can ethically tell them at this point is that they need to get appropriate legal counsel,” Becker said of people who have gotten caught in the middle of the closing. “This is not a situation that is going to be resolved instantaneously.”
• There is a quite a bit of concern these days in the Lawrence development community about how regulators are forcing community banks to change their lending practices. It is not news that it has been tough in Lawrence and elsewhere to get commercial loans for new business ventures. But what is really worrying many in the development community is how difficult it has become to get refinanced. Developers often take out short term loans to temporarily finance raw ground that will be developed in the future or buildings that already have been constructed but aren’t yet fully leased. Those short-term loans often require the developer to only make interest payments, leaving the principal to be paid off once the project develops.
But now developers and bankers alike are telling me that those terms are changing greatly, at the insistence of bank regulators. In some cases, loans are only being refinanced if the developer can make interest payments plus pay off 10 percent of the principal per year.
One developer whom I respect recently told me he expects a significant number of lots and buildings to be turned back over to banks, if the regulatory environment doesn’t change soon. And that won’t be good for the local economy.
“It will put a lot of people out of business, and I think ultimately it will put banks out of business,” he said.
The people I have been talking to think community banks are being treated unfairly by regulators when it sure appears that it was the large institutional banks that created much of the financial crisis.
Of course, the people I’ve been talking to about this have vested interests, so it will be interesting to hear what some other people who follow the banking industry but may not be so directly tied to it believe. I’ll be looking for some of those types in the coming weeks, and will report back. It sure seems to be an issue worth watching, though.
• I’ve had several readers ask me how much time Borders has left before it closes its downtown Lawrence store. Well, the location is now down to its final four days in business, according to employees and several signs. (Actually a sign outside says five days, but employees assured me that Sunday is the last day the store will be open.) All items left in the store are marked down by 70 percent to 90 percent, and the store certainly has started to focus on selling its shelving and other fixtures.