Meetings of Robert Morris Associates are always special to me.

Maybe that's because the group is more like a national fraternity than a collection of regional chapters.

Philadelphia-based RMA was started as a way to share information about the credit-worthiness of corporate customers, so it needed national links. Clarence Reeds, its executive vice president, tries to keep this linkage strong by sending a staff member to almost every chapter meeting.

Class Reunion

Another reason for my excitement at sitting in on an RMA chapter meetings is that so many people there were my students during my 31 years teaching at the University of Delaware's Stonier Graduate School of Banking. (Many of them remind me about jokes I told then that would get me lynched today.)

Despite all that has happened to diversify banking, the commercial lending officers are still the kingpins of most banks. Most CEOs used to come from the commercial lending side, and many still do.

But whether or not they are headed to the top, most people you meet at an RMA function are superbright and really know what is going on in banking.

At the Long Island, N.Y., meeting I attended last month, the topic that fascinated me was workouts. Virtually every loan officer reported working harder than ever before, putting in long hours to work out loans that had become nonperformers.

To me, as an outsider, this seemed futile. "If borrowers can't repay, how can hard work on your part get them to dig up the money they don't have?" I asked again and again.

It reminded me of the man trying to get a mouse to tow a truck. "I have a whip," he explained.

The RMA members agreed with me in some instances. If there is no light at the end of the tunnel, the prudent thing to do is give up, they said. "Why waste time and more money?"

But through the workout process, loan officers can often create light at the end of the non-performance tunnel.

Bankers differ on whether the people who made loans should be the workout reps.

Some say lenders know their borrowers and where resources might lie untapped.

A Shirtsleeve Approach

Others say the original lenders have too much at stake - they want to prove that they were right and that defaults have resulted from conditions the borrowers (and therefore the lenders) could not have foreseen or controlled.

This question remains moot. Ask two bankers and you can usually get three opinions.

Asked what a workout involves, most RMA members respond that the first step is to try to be a management consultant without becoming so involved in the borrower's operations that the bank can be a hit with a lender-liability suit.

Sometimes workouts involve suggestions from the bankers as to how to make an operation more efficient, how to plug leaks of assets, and how to find new markets and opportunities.

Many RMA members are finding that they are almost running coin laundries, quick-lube shops, and the like in their role as bankers. One lender even told me that he has had all checks for receivables sent to the bank instead of the customer, to keep track of what is going on.

Bankers accept such assignments as part of the job. But what bothers many is that borrowers have changed their attitudes about whether a bank has the right to get its money back.

Bankruptcy Revisited

"I get phone calls all the time," one banker reported, "with the company that borrowed money saying, |My suppliers are settling with me at 60 cents on the dollar. I expect you will do the same.'"

The workout specialist's response must be that the money was lent in good faith, and the bank wants it back. If the payments have to be stretched out, so be it. But bankers are not here to accommodate borrowers who believe that bankruptcy is an acceptable and painless way of getting out of your debts.

Character Test

What must the workout specialist do? Explain what bankruptcy really is and what it does to any future ability to borrow.

"As soon as someone comes to me to bargain over the terms he agreed to and offers 60 cents on the dollar, I am through with him," one RMA associate put it to me. "This person has no character, and I don't want his business ever again."

Sometimes the banker has to be like a therapist, explaining what conscience is and that reputation and honor mean more than a lawyer's siren song. Others explain what Chapter 11 means.

One banker told me, "No company that ever went Chapter 11, in my experience, has ever come out with any assets to start over. The company is far better off working with its bank or banks and trying to keep the operation alive."

And what makes the lender's job extra difficult is that even with the strongest loan agreement, providing personal guarantees and collateral, it is difficult and time-consuming to take over the collateral and attach the assets of the guarantor.

This is why lenders hesitate to approve loans. It is still easy to make them, but it's an awful lot tougher to get your money back.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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