Right up until it collapsed this spring, First NBC Bank made a business out of issuing risky loans.
And it was an unusually forgiving lender, according to a recent report from federal regulators, often giving out new loans simply to help borrowers pay back previous ones.
So the question reverberating around New Orleans, where the bank's lending helped fund numerous projects and businesses, is what happens now that so many of those loans have been snapped up by out-of-town investors who may not have the same patience.
Some experts worry that the bank's implosion may ultimately hurt local real estate prices, curtail the availability of credit and threaten the viability of ongoing development projects.
"Now you have a lot of property that's in the hands of some out-of-state owner," said Kyle Waters, a former president of Metairie-based Omni Bank, which was acquired by IberiaBank in 2011.
"What's going to happen to that real estate?" Waters said. "Is it going to be sold? Is it going to be liquidated by people who can't pay? Some of it is going to go on the market, and what's that going to do to the price of real estate?"
The loans in question first landed with the Federal Deposit Insurance Corp., the U.S. banking regulator that suddenly owned the bulk of First NBC’s assets when the bank was ordered closed April 28 in the costliest failure of an American bank since the height of the 2008-10 financial crisis.
Having sold First NBC's best assets to Whitney Bank, the agency recently sought other buyers for nearly $1 billion worth of the bank's loans — some of them good, some of them shaky, some of them in default or close to it.
The loans, pooled into more than a dozen groups, netted about $367 million at auction. That's only about 40 cents on the dollar, suggesting just how tattered the portfolio was at the time of the bank's implosion.
Now, the bulk of those loans are in the hands of nine out-of-state investors that won the bidding, a group made up mostly of hedge funds with unfamiliar-sounding names.
Local experts say several things may happen next. If borrowers are at risk of missing loan payments, they could try selling the property to pay off their mortgage, pocketing any profit.
Likewise, a new lender could turn to foreclosure to recoup the loan principal; because they bought the loans at a deep discount, they may be able to turn a profit even if they end up selling at a below-market price.
It seems unlikely that the new lenders will be as flexible as First NBC was. In a report released this month, the FDIC’s inspector general said the bank issued or renewed loans to distressed clients even after their long-term prospects were exposed as questionable, in some cases for larger amounts and easier terms than other banks would have granted.
"Most lenders are not going to lend you money to make payments,” said Guy Williams, president and CEO of New Orleans-based Gulf Coast Bank and Trust, which has 19 branches in southeast Louisiana.
“If you're expecting that, then you're probably going to need to work it out through either a restructuring, a bankruptcy or foreclosure, and hope for the best," Williams said.
More than a month after the sale of First NBC’s loan portfolio, the new buyers haven't publicly signaled their plans. But one Minnesota-based credit shop issued a statement downplaying the significance of its acquisition.
"In this case, instead of sending the monthly loan payments to the bank, the company sends the monthly payments to an investment partnership. That's the only change caused by FDIC's action at FNBC," said Jerry O'Brien, CEO of O'Brien-Staley Partners, which offered nearly $32 million for 16 loans that First NBC had booked at about $53 million.
Others believe the impact will be more substantial.
"It'll have a bad effect on real estate prices," said Sherwood "Woody" Briggs, a longtime New Orleans banking analyst at Chaffe & Associates. "If (the investors who now hold the loans) have to, they'll take a lien against the property and collect it themselves for the best price they can get, but what they probably won't do is spend a lot of time selling it."
In other words, some real estate prices could fall because the new owners can sell properties at a discount and still make a profit, meaning they might not be motivated to get the best possible price.
Likewise, Albert Kelleher, president of Florida Parishes Bank, which has seven branches in the area, predicts that the loan sales will ultimately have a far-reaching effect.
"It'll be disruptive to the market when there's several hundred million dollars of loans where people on the other side are actively trying to collect the debt," Kelleher said. "Things may be put in foreclosure; businesses may be forced into bankruptcy. That'll be disruptive."
First NBC's absence from the market has already created ripple effects.
"I know people that were either right at the beginning of projects, or just about to break ground on projects, that got really stalled and really stuck by this," said Will Bradshaw, co-founder of a New Orleans-based real estate firm, Green Coast Enterprises.
Among other projects, Bradshaw is involved in turning the old Tulane Industrial Laundry building in Mid-City into a mixed-use development with commercial space and a dozen apartments, an effort that faced delays after its tax credit financing through First NBC fell apart with the bank's collapse.
Likewise, New Orleans actor Wendell Pierce voiced frustration that his effort to build affordable homes in Pontchartrain Park languished because his financing fizzled.
"You look at any development or any business that was with First NBC — it's a transition period of what Whitney wants to do or doesn't want to do, or other private investors," Pierce said in a recent interview. "It's still sorting itself out in so many businesses around the city and the region."
Other projects also faced setbacks, including a $15 million effort to redevelop the former Holy Cross School building in the Lower 9th Ward and plans to transform the former St. Peter and Paul Catholic Church and School in Marigny into a 71-room hotel and event space.
The latter faced delays because First NBC was set to deliver a construction loan for the project, although it's now scheduled to be completed next year, according to co-owner Nathalie Jordi.
One bright spot in the whole mess: Other local banks have taken the opportunity caused by First NBC’s collapse to scoop up some of the failed bank’s business.
At Florida Parishes Bank, Kelleher said he fields about a dozen calls a week from former First NBC clients looking to move to his bank. Many of them have.
For the six months that ended in September, Florida Parishes' total loans grew by nearly $40 million — to about $205 million, federal data show. That’s a 25 percent jump in half a year, a pace Kelleher said was "very rapid."
More loans are in the pipeline, according to Kelleher, who joined Florida Parishes early this year after serving as executive vice president at First NBC.
"If you look at any of the community banks over the last six months or so, you can see their growth in a lot of their portfolios," he said.