Regional Bank in Sub-Prime Lending (RBISPL)
The sub-prime lending industry had been a growth industry and many financial institutions started divisions or acquired companies that specialized in this type of financing. Because Wall Street was chasing these types of assets, industry practices had deteriorated to the point that it was difficult to write profitable business and although the business was securitized, the banks had maintained substantial residual risk. The industry was also fraught with financial restatements and bankruptcies.
RBISPL had purchased a sub-prime lending company. They installed executives in key management positions that did not have substantial experience in the industry. As the industry deteriorated, the Board of Directors questioned remaining in the business and wanted an outside opinion on what options were available. The company was servicing $250 million in securitized loans and because of the problems in the industry, the rating agencies were concerned about the company’s plans. Needless to say a down grade of the securitized assets would not be in RBISPL’s best interest.
Why Goff Associates, Inc. (GAI)?
GAI is recognized as an industry expert in sub-prime lending with expertise in turning around troubled organizations.
GAI immediately began their assessment of the organization. Evaluations initially focused on marketing, pricing, and operations. Within two weeks, GAI recommended and the company implemented cost reductions that produced $2.7 million in savings in the 1st year. Within 90 days, GAI prepared a presentation for the Board that laid out the options for the company going forward. GAI’s presentation included a detailed plan to make the company Best-in-Class, how to maximize growth and profitability, and an alternative for an orderly liquidation of the company. With this information RBISPL felt comfortable that they were making an informed decision.
Simultaneously, GAI assisted the company in their meetings with the rating agencies. The rating agencies did not reduce the rating of the securitized assets although this was in concern prior to the meeting.