If a Bank Buys a Bank, You Would Think They Know How To Do Diligence
This is another one of those “You have to be kidding!” stories.
A bank decided to buy a bank in another state to build presence in the local market. The price tag was about $100 million. The seller reported in its last report to the bank regulators before the purchase that their so-called “problem loans” were around $5 million. After the purchase, the buyer told the regulators that roughly $25 million of loans were problem loans!
How could such an enormous discrepancy exist?
Digging into the details, the buyer and the seller had two different methods of classifying problem loans.
You would think that a bank, purchasing another bank, would know that this could occur. After all, the bank regulators allow this, which is great fodder for another article!
So, there are two takeaways here:
- Don’t depend on bank regulations when purchasing or selling a bank.
- Do a quality control check on your due diligence practices to make sure to include something that should be absolutely common sense! Run your own methodologies against the loan portfolio and re-calculate everything, and don’t depend on the seller’s representations.
This type of common sense applies to any seller or buyer in any niche. What a surprise. Do your own diligence, and don’t depend on the other side. And by no means depend on a third party such as a government regulator to keep either side out of trouble.
Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon
Due Diligence, Inc.
www. superdiligence (dot)
