If you have a few extra bucks, you might want to save them – according to Kingsley Greenland, head of The Debt Exchange Inc., commonly known as DebtX, now is the time to buy a bank.
DebtX operates the largest online marketplace for loan sales for commercial banks, investment banks, insurance companies and government-sponsored enterprises. After trying to save Bank of New England in the 1990s and working at similar roles at other banks, Greenland has an idea of what makes banks succeed. And right now, they need to grow to survive the regulatory climate currently shadowing the industry, he says.
Kingsley Greenland
Title: President and CEO, The Debt Exchange; Boston
Age: 52
Experience: 25 years
Q: So what exactly does your company do?
A: DebtX is all about creating liquidity for whole loans, not syndicated loans. The primary theme of that is so primarily banks could engage in active portfolio management and never be stuck with concentration risk, a certain type of loan that they had too much of. The joke here is that if we had been wildly successful before 2007 banks wouldn’t have had concentrations of real estate loans and many of them wouldn’t be having the problems they’re having now.
Q: And you’re currently putting out a new product that compiles historic and current commercial real estate loan prices. It’s a quantitative measure of secondary market liquidity, new origination spreads, and analysis of selected trades transacted on the DebtX exchange. What’s the need?
A:In 2007 and 2008, when the financial world hit meltdown, our growth exploded because then all the banks needed to sell credit-impaired loans and needed to clean up and reposition their balance sheets. So a bank will engage us and say, “We have $100 million or we have $3 million of these types of loans that are either credit-impaired that we’d like to move off or we need to repatriate capital because of the new capital requirements so we’d like to sell them, or we’re exiting this line of business.” We’re trying to build an exchange for these banks. We think it will make it a safer and sounder financial system if banks engage in active portfolio management.
To do that they need a couple of things. They need pricing and data. Because we do this in an electronic format and on a marketplace we’ve been able to gather all this trade data for 10 years. And we’re commercializing that now in a new product. It gives the marketplace an insight into what assets are selling for so they can understand which way the market’s going, make bets on which way the market’s going. It’ll provide more transparency in the marketplace, and with more transparency there is more liquidity.
Q: Is this related to the wave of commercial mortgage-backed securities (CMBS) loans starting to come due and likely to continue through the next several years?
A: Well, it’s already started coming due. If it ends in 2015 or 2016, part of that will depend on what happens in the interim with the economy and inflation.
Q: So is this product at all in anticipation of that?
A: It’s in many respects unrelated, but analogous to it. You have different buckets of types of loans that are CMBS and non-CMBs loans. If I am a CMBS special servicer, I would use this data to determine if I wanted to work out a loan. But that’s a small sliver. The purpose of this is as much a function of the increased regulatory scrutiny on banks and their need to consolidate as anything.
Right now there’s a race on to consolidate. The banks that are healthy can buy the other banks. It’s a great time to be buying banks. This is a good tool for a bank to say, “Here’s what my portfolio is worth. Should I call DebtX, should I call somebody else, how should I deal with it?” And the amount of bank acquisitions is only going to accelerate, not just because of the economy, but because of the increased regulation and the need to be larger to offset the embedded costs of meeting the regulatory requirements.
The ability to be small gets more and more difficult, particularly as more asset classes become more liquid and go off balance sheet, it gets harder for a local bank to remain competitive.
