Just because your clients are wealthy doesn't mean that lending them money is a no-brainer.

That's one of the lessons that emerged from a workshop at the American Bankers Association's annual trust and private banking conference, held here earlier this week.

The session focused on the pitfalls of lending to high-end borrowers. Among the risks outlined by panel members: accepting collateral that may prove difficult to liquidate and putting too much faith in a client's reputation.

"You can end up with a hell of a mess," said Susan P. Haney, president of Bank of Boston Corp.'s private bank, referring to the risks involved in secured lending.

Lending, long considered the backbone of private banking relationships, has actually become a less central part of the business in recent years, according to Advisory Board Co.'s VIP Forum, a Washington-based research organization that studies affluent markets and the profitability of private banks.

In 1994, loans accounted for 40% of private banking business, down from 45.7% in 1992, said Michael P. Kostoff, managing director of the VIP Forum, said at a separate session.

While the 50 private banks surveyed said their lending was on the decline, the average number of private banking relationships per officer actually increased 32.5% during that two-year period, to 265.

Bank of Boston's private banking business is now 80% investment management and 20% lending, but the bank is moving to have a more even split "more like fifty-fifty" because more "lending induces more money management business," Ms. Haney said.

However, lenders should think twice before accepting certain types of properties as collateral, said Warren Bacon, a senior credit officer at Bank of Boston's private bank. For instance, he said, few banks would want to have to foreclose on a day-care facility or a private school.

Investments such as stock holdings can also make for tricky collateral. An executive of a public company may not be able to sell stock during holding periods subsequent to an initial offering, said Allan Legon, senior vice president of credit risk management for BankAmerica Corp.'s investment management group.

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