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Big Banks Refusing To Restructure Loans

Large banks creating a crisis for hoteliers

Stanley Turkel  Oct 06, 2010

Almost 100 Asian American hotel owners held an emergency meeting in Atlanta in late August 2010 to discuss a strategy for addressing the financial crisis being created by the lending and foreclosure practices of large multi-state banks.

The session was convened at the urging of former Asian American Hotel Owners Association (AAHOA) chairman Mukesh “Mike” Patel along with several leading hoteliers and community bankers.

According to Patel, mega-banks, many of which remained in business by benefiting from the Troubled Asset Relief Program (TARP), are now refusing to extend or restructure the terms of commercial loans to permit small companies, including hoteliers, to stay in business. “The result is that owners across the country are suffering unprecedented property foreclosures, bankruptcy filings, and loss of life savings,” said Patel.

A hotel owner who has to file for bankruptcy is ineligible for credit for seven years, which deprives American business of a hard-working, free- thinking entrepreneur who is typically a catalyst for economic growth and job creation. Consider that when a typical hotel shuts down, a minimum of 20 to 25 employees lose their jobs - which adds to the country’s already high unemployment.

Patel explained that Asian American hoteliers have a proud history of paying their debts in full. “Yet too many mega-banks - instead of being open to reasonable workout arrangements, loan modification, or troubled debt restructuring that would ensure loan repayment - are apparently more interested in improving their balance sheet by getting certain commercial loans off their books,” he added.

On the other hand, small community banks are demonstrating a strong willingness to arrive at mutually-acceptable workout arrangements with commercial borrowers like hotel owners. “So we have to ask if small banks can re-structure loans, why can’t large banks?” asked Patel.

The answer is in part that large national or regional banks are flush with TARP capital or may be under a time limit for receiving loan loss funds from the FDIC, so they have no incentive to come to a mutually-acceptable solution with the borrower.

“In short, a bank has nothing to lose even if the borrower stands to lose everything,” said Patel. “The situation is indeed desperate because some large banks, instead of facilitating an economic rebound, are actually creating a dangerous new phase of economic hardship for small business owners.”

Without prompt and dramatic action - by Congress, by the Federal Reserve, by the OCC and state regulators, by the FDIC, by the administration, or by some combination of these entities - America’s economy will suffer significant additional unintended and unnecessary casualties through a new round of closings and unemployment among small business owners.

Hoteliers from the August meeting in Atlanta and from similar sessions around the country, are urging the leadership of AAHOA to work aggressively with legislators, regulators, and lenders to encourage work-outs through three specific initiatives:

- revision of the TARP regulations,
- revision of the FDIC loan loss provisions and procedures, and
- passage of legislation pending in Congress to raise the limit on SBA loans to US$5 million and increase the guarantee to 90 percent.

Large banks creating a crisis for hoteliers
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