The Curious Loan Approval
Topic: Commercial Bank Management (Loan Evaluation)
Characters: Jack, Financial Analyst at Candlewood National Bank
Sally Ryan, Commercial Loan Officer at Candlewood National and Jack's boss
As a commercial loan officer-trainee at Candlewood National Bank, Jack's future looked very bright. He had recently completed a series of credit analysis exams, earning the highest score in his training group and capturing the attention of the bank's senior commercial loan officers. In the second phase of his training program, Jack was promoted to a financial analyst's position and assigned to work for Sally Ryan, one of the bank's most productive commercial loan officers. Like Jack, Sally had earned the highest score on the analysis exams among her training group five years ago, and she and Jack quickly became a team to be reckoned with inside the bank's corporate banking division.
In the first few months of his new assignment, Jack quickly grew to admire his new boss. In most cases, when he evaluated the creditworthiness of a new customer for Sally, she readily agreed with his analysis and praised his attention to detail. However, one recent loan application left Jack totally confused. Evaluating a request from Quality Foods, Inc., for a $5 million short-term loan to finance inventory expansion, Jack noted that the firm was dangerously overleveraged. Quality Foods represented a retail grocery chain with 35 stores located in the greater metropolitan area served by Candlewood National, and the firm was financing its retail outlets with operating leases. Unlike financial leases, operating leases only appear in the notes accompanying the firm's financial statements, and Quality Foods' current balance sheet gave the appearance of far less leverage than the firm actually carried.
Jack promptly noted this fact in a memorandum of concern that he forwarded to Sally for inclusion in the Quality Foods credit file. Much to his surprise, Sally discounted the problem and told Jack to destroy the memo. After the bank's senior credit committee approved the Quality Foods loan request, Sally defended her position by telling Jack that the issue of operating lease leverage never surfaced during the credit committee meeting.
In spite of Sally's reassurances, Jack knew from his days in credit school that Quality Foods' operating lease liability was handled improperly. While pondering this problem over coffee in the employee cafeteria, Jack overheard Sally talking excitedly among a group of young commercial lenders. It seems she had just received word that her personal mortgage loan application at Ocean Blvd. Savings and Loan had been approved, and the terms of this loan were most attractive. The savings and loan willingly waived its normal down payment requirement and gave Sally 100 percent, fixed-rate financing of 25 years at 2 percent below the going rate of interest on fixed-rate mortgage loans.
Given his recent credit analysis, Jack recalled that the president of Quality Foods was also Chairman of the Board at Ocean Savings. He began to wonder whether Sally's actions as a commercial loan officer had been compromised by her personal financial affairs, or whether he was simply thinking too much. After all, Sally was an outstanding commercial loan officer, and she was his mentor. What should Jack do next?
Analysis
In your analysis make sure you complete the following steps:
It is due to the DropBox at the end of Unit Be sure to address each of the questions below.
- What is at stake for each key player?
- What levers can the main character in this case use to influence those who disagree with him/her?
- What is the most powerful and persuasive response to the arguments the main character should be prepared to counter?
- To whom should the argument be made? When and in what context?