Benefits of Selling Selected Assets

As the secondary market for commercial loans has become more efficient, more banks and financial institutions are actively using loan sales as a routine portfolio and risk management tool. Financial institutions are increasingly able to manage their balance sheets, improve profitability and reduce risk by divesting selected loan relationships. Among other things, sales of selected assets allow sellers to:

	Recover Excess Reserves - For a variety of reasons, substandard or watch list loans may often have reserves in excess of any likely loss. In these cases, we can often offer the seller a price in excess of the book value, thus allowing the seller to recover today reserves that would otherwise be tied up indefinitely.
	Increase Liquidity – Loan sales provide liquidity to help maintain regulatory ratios or to allow investment in more profitable lines of business.
	Reallocate Resources to Profitable Activities – Sales of selected assets allow the capital and management resources currently allocated to those assets to be reallocated to more profitable activities.
	Obtain Best Pricing in Connection With a Sale or Merger – Sales of non-preferred assets can help banks with an interest in selling their institution to obtain the best possible overall pricing.
	Improve Regulatory Ratios - As noted above, sales of selected loans allow sellers to actively manage their balance sheets and income statements. Among other things, liquidity ratios can be improved by eliminating loan concentrations, profitability ratios can be improved by reducing costs associated with non-accrual assets and by replacing them with more profitable loans, and capital ratios can be improved by recovering the excess reserves associated with classified assets.
	Eliminate Direct Costs – Direct costs of problem assets include attorneys fees, protective advances (such as taxes and insurance), workout/restructuring overhead and costs, court costs, and other miscellaneous expenses. Divesture of such assets improves profitability by eliminating these ongoing direct costs.
	Eliminate Indirect Costs – Classified or underperforming loans often create substantial indirect cost, regardless of whether or not they contain actual loss. For example, classified assets require substantial investment of management time in extra documentation, analysis and discussion. In addition, some loans may involve complex relationship issues that make it time consuming and/or problematic to properly manage the loan. Loans with such characteristics result in diversion of resources away from profitable activities, resulting in both inefficiency and lost opportunities. These indirect costs can often be eliminated by selling such loans.
	Reduce Risk – Problem loans often involve substantial risk and uncertainty, either regarding the amount that will be recovered, or the timing of the recovery. Divesting selected assets accelerates the resolution of such assets for the seller and allows the corresponding uncertainty to be eliminated.