Bank failure fallout is topic of Vilsack stop
By Larry Dreiling
What was originally billed a listening session on U.S. Department of Agriculture programs with Secretary of Agriculture Tom Vilsack became an encounter group with producers affected by the April 10 closure of Greeley, Colo., lender New Frontier Bank.
Vilsack spent the first 20 minutes of the listening session telling about the Obama administration's stimulus funding efforts. Only afterward did the more than 300 persons, mostly producers who shoehorned themselves into a meeting room at the Morgan County Fairgrounds in Brush, Colo., spend the rest of the time Vilsack was there telling their stories of fear of losing their operations due to a lack of credit following New Frontier's failure.
New Frontier closed about four months after the FDIC issued a cease-and-desist order against the bank for "unsafe" and "unsound" practices. Defaults on the bank's mostly agricultural loans left it with shrinking capital to cover potential losses.
Gary Teague, owner of Teague Diversified, Inc., tearfully told Vilsack how he has been unable to find any bank to take over his loan from New Frontier. Teague said he and the other producers who had loans with the failed bank had been given 30 days to find a new source of credit before the Federal Deposit Insurance Corporation would find their notes in default and begin foreclosure proceedings.
No credit available
Teague said they needed more time to obtain new appraisals needed to seek new credit. After the meeting, Teague said he had contacted more than 30 banks and none would immediately assume his loan from New Frontier. Vilsack said he would contact FDIC Chair Sheila Bair to seek an extension for the producers affected by the bank closure.
"They've tarred us as having bad credit because we did business with a bank that failed. We aren't at fault here," Teague said. "We pay our bills."
Following the meeting, FDIC officials announced the producers who had borrowed from New Frontier won't face the 30-day deadline to find alternate financing, after all.
In a statement released by three Colorado members of Congress, the FDIC said there is no 30-day deadline, but the statement didn't say how much time borrowers do have.
The FDIC extended about $2 million in credit to agriculture enterprises so they could meet expenses as the growing season looms.
But Colorado Sens. Mark Udall and Michael Bennet and Rep. Betsy Markey said the bank failure created a need for about $700 million in agricultural loans that other lenders haven't been able to provide.
Up to local banks
Vilsack said at the Brush meeting he freed up $253 million for operating loans--$110 million of which were re-appropriated for direct operating loan funds and $143 million for unsubsidized guaranteed operating loan funds--that could help farmers searching for credit, but he said that it would be up to local banks to pick up New Frontier's loans.
Colorado Secretary of Agriculture John Stulp has said only $4 million of the bank's $750 million loan portfolio has been purchased by other banks. Because of the credit crunch other banks are facing, it is being discussed that area banks will request funding from the Troubled Asset Relief Fund to assist the producers in gaining new lines of credit.
Meanwhile, the Greeley Tribune reported on a May 16 community meeting featuring Udall, Bennet and Markey as well as representatives from banking, agriculture and small business on the credit crunch left by New Frontier's failure.
New Frontier was critical to the agriculture industry officials said, as it was one of the few banks in the region large enough to dole out the massive lines of credit needed by farmers and dairy operators.
"This is a $700 million hole in Weld County's economy and the surrounding economies and the job everybody has in front of them is to fill that hole," said Udall, after the meeting. The Tribune reports it was unclear how much TARP money would be requested by area banks to solve the credit crunch New Frontier's closing created.
Money needed now
Timing is of the essence, however, in helping the producers during this spring planting season. Also, the large number of dairies who used New Frontier as their bank need to resume their lines of credit to buy feed.
The Tribune report indicated that during an informal poll of the audience, during the May 16 meeting, nearly half of the producers present said they were turned down from at least one bank, with many saying they've been turned down from several banks.
FDIC officials have been urging patience, as banks have also been restricted in how they lend, hence the reason for requests for TARP money. Producers at the Brush meeting told Vilsack, however, they can't wait the three to six months it may take for area banks to raise enough capital for them to begin lending to large enterprises such as dairies and cattle feeders.
Bennet told The Tribune substantial TARP funding in the region is needed. More than $100 billion of the $700 billion program approved in October 2008 remains to be spent, with much of that money going to large banks as well as the auto industry and, most recently, the life insurance industry.
"One of the frustrations you heard in (the meeting)--it's a frustration for all of us as well--is that people see funds going to banks in New York or Wall Street but they don't see them coming to local communities," Bennet said.
Meanwhile, it was reported that during the May 16 meeting in Greeley, an FDIC official told those in attendance the FDIC was limited in what it could do for producers and tough decisions would be ahead for both producers and the FDIC.
"You may have to start looking at maybe shrinking your operation," said Ron Bieker, director of the Division of Resolutions and Receiverships for the FDIC. "But again, we are open, willing to visit with you and talk to you and if it makes sense and it's reasonable, in the best interest of the receivership, we will do a deal."
All of this likely is of cold comfort to people who may wait up to six months for a new line of credit to become available for their operations. One voice at the Brush meeting with Vilsack summed up the opinion of many:
"The ripple effect of this bank's failure is profound," said one woman. "The people who borrowed money from this bank buy from each other, whether it's fuel, feed or pickup trucks or seed or livestock. We all worked to make the local economy prosper.
"We have an immediate need here. What are you going to do for my neighbors? I'm saying right now, you can't believe the carnage that will happen to this area if we can't get help soon."
Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at email@example.com.