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The credit might have been "gold-gilded," but it did not make sense, the first test that a credit must pass.
December 18 -
Here we find a bank president, who makes a loan commitment over a martini - if I may be facetious - without even looking if there is an olive in the glass.
December 3 -
It would appear that a bank could not negotiate a loan on more favorable terms than the deal I was looking at. Yet, something did not make sense.
November 29 -
Banks should adhere to high moral standards by discouraging people from going needlessly into debt. The concept of "fly now, pay later" does not promote consumers financial responsibility.
November 10
In the 1970s, as a vice president in the Loan Administration office of the San Francisco subsidiary of a major European international bank, I was wearing several hats: loan administrator, loan officer and loan adjuster.
The Beverly Hills branch submitted a proposal for an account receivable line of credit, which I rejected offhand for the simple reason that the branch had neither the personnel nor the expertise to manage this specialized type of credit.
The executive vice president, a senior officer of the parent bank, at the behest of the branch, approved the credit.
The borrower soon started to feed the bank with fraudulent paper, and, when the branch began to suspect that some of the assigned receivables were bogus, in a sly move, it sold the line of credit to a factoring company.
The first thing that the factoring company did was send out 100% verifications of the receivables. As it turned out, about 50% of the verifications came back negative. The receivables were fraudulent.
The factoring company then made a demand for a rescission of the line of credit sale, but the new president of the bank, freshly arrived from the parent company, refused to accept the factoring company's demand.
The president of the factoring company called me directly and begged me to talk to my president, to make him understand that they, the factors, would have no alternative but to sue.
The president of the bank, yet unfamiliar with American commercial law, insisted that the line of credit had been sold without recourse, and that the bank would not buy it back. He would not understand that the fraudulent accounts receivables were not protected by the non-recourse clause.
Since the president would not listen to me, I asked bank counsel to talk to him in order to change his mind. Counsel did, because, right after, the president dispatched me to Los Angeles to meet with the management of the factoring company and negotiate a settlement.
In the meantime, the factors had seen fit to take the initiative and squeeze all they could out of the dishonest merchant. This included his house, boat and other assets, which they liquidated quickly in order to reduce the loss to a fraction of only $25,000.
The factoring company proved to be quite generous: It waved any demand for reimbursement of legal expenses, provided that the bank settled for the deficiency of $25,000.
I agreed.
Special credits, like accounts receivable financing lines, real estate construction loans, import-export lines and automobile dealer financing, require specialized and experienced managers and personnel – or actually, entire specialized and organized departments – because, while they may be quite profitable, they are inherently hazardous.
A bank desirous of entering any such field must draft a policy to guide it, make a commitment and organize a separate department duly-staffed before starting operations. To improvise is tantamount to committing financial "harakiri."
Over his 50-year career in banking, Ugo Nardi worked his way up from a teller to an auditor, lending officer, state bank examiner, and a bank president. He retired in 2000.
