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Optimising Distressed Loan Books: Practical solutions for dealing with non-performing loans

Book Description

Dealing with distressed loans is different to other banking activities. Normal bank processes, decision-making structures, management techniques and investment philosophies are geared to making money in buoyant markets. However, these same characteristics mean that in a downturn banks are poorly equipped to deal with working-out distressed loan portfolios. This is problematic and costly for banks, as there are billions of dollars to be made from the resolution of defaulted loan books, if only they can harness the skills for doing this effectively. In this unique new book, John Michael Sheehan explains why financial institutions have failed to resolve distressed loan books profitably in the past and describes the solutions they can put in place to improve this in the future. Sheehan builds on 20 years' experience of hands-on asset monetisation, loan portfolio servicing and debt work-out to describe how banks can learn to convert the dredges of loan defaults into profits. Written in a clear and approachable style, illustrated throughout and punctuated with insightful real-life case studies, Sheehan provides a highly accessible guide to this technical area. The book is divided into three parts. The first section analyses how and why banks fail to maximise distressed recoveries. The second section is a practical, basic training manual of techniques, systems and processes that will explain to investors or lenders how to go about earning back their losses and, in many cases, clearing amounts greater than par. The final section analyses lessons from previous crises and proposes how in the future financial institutions can improve their distressed loan resolution practices. Bank executives and officers, their advisors, loan servicers, investors, and government-sponsored entities will be able to use this book as a working tool to assist them in working-out loans and retaining the rewards from this process. Accountants, administrators and ratings agencies should find this book to be an extremely useful source of reference, whilst regulators, academics and students will also find it will improve their understanding of the secretive distressed debt industry and therefore the financial system.

Table of Contents

  1. Cover
  2. Publishing details
  3. About the Author
  4. Acknowledgements
  5. Preface
  6. Introduction
    1. 1. How Distressed Debt Escalates Out Of Control
      1. How banks traditionally handle bad loans
      2. Problematic high volumes of distressed debt
      3. The difference between normal market conditions and conditions after a crash
    2. 2. Why Banks Fail To Maximise Distressed Collections
      1. Reasons why distressed debt resolution performance is variable
      2. Summary
    1. 3. Structure solutions
      1. 3.1 Response to crisis
      2. 3.2 Internal work-out
      3. 3.3 Bad banks
      4. 3.4 Special servicers
      5. 3.5 Selling off loan books
    2. 4. Preparation and Planning solutions
      1. 4.1 Core concepts and components
      2. 4.2 Resources for different loan types
      3. 4.3 Preparing the groundwork for resolutions
      4. 4.4 Optimising collection distribution
    3. 5. Asset Management Solutions
      1. 5.1 Skill sets for distressed asset managers
      2. 5.2 Managing asset managers
      3. 5.3 Controlling the resolution process
      4. 5.4 The asset manager toolkit
      5. 5.5 Measuring asset manager performance
    4. 6. Borrower solutions
      1. 6.1 Dealing with defaulted borrowers
      2. 6.2 Refinancing and restructuring
    5. 7. Collateral Solutions
      1. 7.1 Credit bidding (REO)
      2. 7.2 Real estate valuation – making appraisals work
      3. 7.3 Property valuation benchmarking
      4. 7.4 Real estate development – credit blind spot
      5. 7.5 Real estate market recovery
      6. 7.6 Finishing incomplete real estate developments
    1. 8. Lessons From Previous Crises
      1. The traditional response to crisis
      2. Common themes from recent financial crises
    2. 9. New Initiatives to Preserve Capital and Increase Returns
      1. Initiatives that could be explored further
    3. 10. Recent Developments In Distressed Debt
      1. Financial globalisation
      2. Technological changes in the Western banking system
      3. Regulatory intitiatives
      4. Resolving the distressed debt problem
      5. The downward deleveraging spiral
      6. Optimising distressed loan books
    4. 11. Conclusion
    5. Glossary of Terms
    6. Appendix