Jeff Judy

Jeff's Thoughts - December 12 , 2007

Taking Your Eye Off The Next Ball . . .

Credit quality issues? Sure, everyone inside and outside our industry is aware that there are plenty of credit concerns around us these days. Lots of banks are gearing up efforts to detect problems, kicking up their training and employee communications a notch or two, all driven by the effects of subprime mortgage lending and the collapse of the housing markets.

Could the price of this heightened vigilance actually be some new, and ugly, surprises in your credit portfolio?

One thing that our industry has demonstrated time and again is a tendency to focus on one thing at a time. Strange mortgage decisions will just go into our history along side funny ideas about commercial real estate, or painful lessons learned from lending in developing countries. An obsession with sales alternates with a devotion to asset quality, depending on conditions

So, sure, you're looking closely at some of the loans on your books. That can mean trouble if it means you are not paying attention to the rest of your business

Here are just a few ways to develop new problem credits in the current environment:

Many of these problems boil down to a forest-and-trees situation: there are so many strikingly bad transactions out there that you can easily take your eye off your current, and future, portfolio. Reaction overwhelms planning and deliberate decision, and before you know it, you are astonished when certain customers give you new problems to think about.

I am not suggesting for a moment that we don't have a serious situation related to housing and mortgage markets. But I am strongly suggesting that if that's all that you think about and deal with, by the time that crisis has calmed down, you'll have a new basket of troubles, all of your own making

Keep your eye on the ball? Balls, more like it. A single-minded focus on the most obvious issues of the current credit environment is a shortcut to wasting a lot of staff time and company money, in six months or a year, on another set of completely unnecessary problem credits.