EFFECTIVE DECISION
MAKING
Making decisions about the
disposition of non-performing
assets is very difficult:


Inadequate information on which to base
decision
Fear of trouble
Fear of criticism
Fear of retribution—loss of job or position or
being reprimanded
Fear of giving something away
Effective decision making requires
three basic elements:



Clear and precise delegations of authority
Written, detailed policy and procedures
Documented approval process
t
Effective Decision Making
Authority to make asset related decisions
should be delegated to descending levels of
management within the organization,
depending on the size and magnitude of the
asset and related proposed action.
Routine decisions should be made routinely
and by the use of individual authority
Credit Review committees should be
encouraged as opposed to individual decision
making on large and complicated matters
Delegations of Authority Relating to
Closed Bank Management
 Authority is delegated and re-delegated in
smaller amounts to descending levels of
management and responsibility
Ultimate authority with board of directors
Board delegates a certain level of authority to
LPS Director
LPS Director re-delegates his authority to a
committee made up of senior LPS managers
LPS separately re-delegates some of his
authority to Liquidation Team Manager
Types of Delegations of Authority
specific to asset disposition
decisions:

Compromise and settlement authority
Abandon any asset
Compromise any asset
Release guarantors on any asset
Abandon collateral to any asset
Dispose or sell any asset
Approve settlement or any claim or litigation
concerning any asset (in concurrence with Legal
Counsel)
Types of Delegations of Authority
specific to asset disposition decisions:

Compromise and settlement authority (cont’d)
 Take all other appropriate action related to assets in
closed banks

Book Value Limitation:
 This authority extends only to those assets that have a
book value of __________or less

However:
 Regardless of the limitation above, to take any action
where the amount of loss to be realized does not exceed
15% of the total of principal and accrued interest
Types of Delegations of Authority
specific to asset disposition
decisions:

Sale of Real Estate or Other Property
On an all-cash basis or on terms if the appraised
value is __________or less
Regardless of the above limitation, to sell real or
personal property on an all-cash basis for a
minimum of 100% of appraised value
All sales shall be conducted according to the
policy for sale of real and personal property
Types of Delegations of Authority
specific to asset disposition decisions:

Disbursement of Funds
 For the protection of any asset not to exceed
________per calendar year
 In accordance with contractual obligations arising from
loan commitments, partially funded loans, letters of credit
 To remove prior liens at or prior to a senior creditor’s
foreclosure sale whenever the total amount of prior liens
is 60% or less of the property’s appraised value
 To pay sales commissions and closing costs, provided that
the total amount paid does not exceed 10% of the sales
price
Types of Delegations of Authority
specific to asset disposition
decisions:

Release Collateral Security
For 80% or more of appraised value whenever
such release does not compromise a claim
against a borrower



Initiate Foreclosure on Collateral
Restructure Debt
Sell Loans
Written, Detailed Policy and
Procedures:

These are the rules by which assets are
managed, such as:
Financial statements required
Real estate appraisals
Listing price
Foreclosure bid amount
Broad marketing effort
Etc.
Documented Approval Process

I recommend a system based on the FDIC “case”
memorandum system. A case is a written
memorandum to the appropriate level of authority
seeking approval for an action, formatted as
follows:
 Proposal
 Description of asset and situation
 Why the proposed action is the best alternative
 Review of lesser alternatives
 Substantiation of proposal
 Citation of policy and procedure as applicable
 Citation of relevant delegations of authority
Written case system provides:

Clear paper trail of:
Work done on asset
Financial analysis
Collateral value
Alternatives
Compliance with policy and procedure
Applicable delegation of authority for decision
being made
A certain discipline in the work process