In the 1970s, as a vice president in the Loan Administration office of the San Francisco subsidiary of a major European international bank, I was wearing several hats: loan administrator, commercial loan officer, real estate loan officer and loan adjuster.
The Beverly Hills branch submitted a proposal for a $500,0000 revolving line of credit requested by an architect, who, supposedly, was purchasing old mansions to be upgraded and sold to major corporations for use by their visiting executives.
The architect, presenting himself as an alumnus of Frank Lloyd Wright, would park his Rolls-Royce right in front of the bank, undoubtedly to make an impression.
I was not impressed by the Rolls-Royce, and rejected the proposal for three reasons. First, the revolving feature of the credit was not, in my opinion, appropriate for the purpose, and suggested that a loan, with a definite, short-term maturity, encompassing a single property, would be more appropriate. Second, the branch personnel did not possess the expertise necessary to manage this type of loan. Third, there was no mention of a take-out commitment.
The executive vice president of the bank, who was visiting the branch, was persuaded to approve a six-month loan of $200,000, without a take-out.
That was the last that the branch saw of the architect and his Rolls-Royce.
After six months, the loan remained unpaid, and the borrower was not to be found anywhere. That's when I was asked to put on my loan adjuster hat, and try to collect the loan.
The branch, which, as I said, did not posses the expertise to manage this type of credit, had not taken a deed of trust on the property to secure the loan, and had paid out the proceeds entirely after booking the loan, instead of planning to disburse in progressive payments.
Matter of fact, had the branch, at the very least, examined the title to the property to be improved, it would have discovered there was no property at all.
The CPA certified financial statement of the borrower, showing a net worth of nearly a million dollars, proved to be completely fraudulent.
A Los Angeles finance company called. They had been taken, too, together with seven other foreign banks, and were planning to file a petition for involuntary bankruptcy.
The finance company asked if my bank would join in the filing, and I agreed.
At the bankruptcy court hearing, the lawyer representing the architect requested that the petition be set aside pending filing of a voluntary bankruptcy.
The legal maneuver, I would guess, gave the architect some time to pick up his marbles and disappear, reportedly into Mexico. With his Rolls-Royce, of course.
Any comment seems to be superfluous. Lending requires expertise. There is no room for amateurs. Moreover, specialized lending requires specialized expertise.
But expertise alone is not sufficient without experience, and its byproduct: a "gut" feeling that enables a lender to separate the good credit applicant from the bad, the legitimate from the "con."
Over his 50-year career in banking, Ugo Nardi worked his way up from a teller to an auditor, lending officer, state bank examiner, and a bank president. He retired in 2000.