I wonder who bought up all of these properties

Eyebrow raising story here about the Bank Of Louisiana's 97 year old founder and his ongoing dispute with FDIC regulators. 

G. Harrison Scott, chairman and majority shareholder of the Bank of Louisiana, is not fond of his bank’s regulator, the FDIC.

“They’re lying sons of bitches, and you can quote me on that," he said. "They lie, lie, lie, and I’ve caught them in it.”

Yeah it's not really clear from the story that he's actually caught anybody in a lie.  In fact this says his family members and partners have a plan to comply with the FDIC orders but Scott still needs to sign off on it. Basically, it says he's being stubborn and taking things personally and his daughter who is more or less running things now is trying to work around that. 

Anyway what's fascinating here is that we're told this is a case of the old man being out of step with The Way Things Are Done Now.  But I think it's an open question as to whether the "good old days" described here were really that long ago. 

Shannon Scott said that the bank was forced to sell off loans to one customer in particular, Billie Karno, a prominent owner of properties in the French Quarter, including the bars known for their "Huge Ass Beers" trademark. She said the loans were performing fine and it was easy to find another bank to take on some of them to satisfy the regulator.

"It used to be you’d take the FDIC auditor out to lunch and have a couple of cocktails and take him golfing and he’d give you a great review," said Shannon Scott. "It’s just different times, things have moved on and you either adapt and change or you get out of the business."

Attorney Henry Klein, a longtime friend of Harrison Scott and a former bank board member said: “He and Judge Comiskey, when they ran the bank together, were gentleman bankers the way bankers used to be."

I mean if these loans to Karno's businesses didn't raise objections until 2011, then what has really changed?  We can LOL at the golf and cocktails line here but the new COVID relief bill does include a so-called "three martini lunch" deduction. Surely there's still some room in this business climate for a "Huge Ass Beer" clause.  

But forget about that. That's not really what's interesting about these Bank Of Louisiana dealings. What is going on with all these foreclosed properties? 

The main complaint in the FDIC's latest action was the bank's large portfolio of foreclosed properties. It started the year with 53, which had annual carrying costs of $1.5 million annually, according to the FDIC. That's enormous for a bank with revenue through the end of September of barely over $5 million.

Shannon Scott said she has since sold off 26 of those properties and expects to make more progress well before the scheduled hearing next summer.

Would love to see some follow up reporting on what sorts of properties these are and who is buying them.  One of the most disturbing trends in housing since the 2008 financial crisis has been the consolidation of rental properties by national private equity firms. Here is a recent NYT Mag article looking at some of that.  

When credit was tight after the financial crisis, the acquiring firms, led by Blackstone, figured out a way to generate more of it by creating a new financial instrument: a single-family-rental securitization, which was a mix of residential mortgage-backed securities, collateralized by home values, and commercial real estate-backed securities, collateralized by expected rental income. In 2013, a year after Ellingwood’s home was acquired, Blackstone’s Invitation Homes securitized the first bundle of single-family rentals — 3,200 of them for 75 percent of their estimated value: $479 million. Those who bought these bonds received 3 to 5 percent in monthly interest until their principal was returned (generally in five years). Blackstone put some of that $479 million toward repaying the short-term credit lines it took out to buy the houses. Because the value of the portfolio of homes had increased since their acquisition, Blackstone could extract much of the difference as cash and buy more homes. Blackstone issued a second bond package of nearly $1 billion six months later. Other REITs like Colony American Homes quickly began doing the same, rolling homes like Ellingwood’s into a $486 million securitization.

With the securitized homes, the rental income now needed to cover not only the mortgage but also the interest payments distributed to bondholders — creating an incentive to keep occupancy and rents as high as possible. In fact, Invitation Homes’ securitized bond model assumed a 94 percent paying-occupancy rate, putting pressure on the company to evict nonpaying tenants right away.

A lot of people are hanging by a thread right now trying to stay in their homes.  Not sure any of them are going to have much success settling back rent disputes with a corporate absentee landlord over golf and cocktails.