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Frost VP says bank is looking for a good relationship

Tuesday, March 31, 2009 by Michael Mmay

Bill Perotti Jr., who carries the title of chief credit officer, among others, for Frost Bank, spoke at the Real Estate Council of Austin’s monthly luncheon last week to answer the question that’s on every real estate investor’s mind: how is my next deal going to get done?


Perotti is particularly well-qualified to answer that question. He’s learned how to weather recessions the hard way. He joined Frost in 1981, just a few months before the bank was hit by the perfect storm, a simultaneous sharp drop in oil prices and the devastating peso crash in Mexico. Hundreds of Texas banks went under. Of the top ten Texas banks, only Frost survived the crisis. “We stuck by our relationships with businesses and survived,” Perotti told the crowd at the Four Seasons. “I just got a half-million dollar pay down from a loan made in the early 80s. The borrowers weren’t even legally required to pay it, but we’ve had a relationship for decades and they felt that it was the right thing to do.”


And the bank’s survival clearly wasn’t a fluke. Frost has dodged a bullet again this time around. According to Perotti, the bank pulled out of most mortgage-related investments six years ago. “Mortgages started to be traded like commodities,” he said. “It was no longer lending money from people to people, so we got out. We don’t have sub-prime investments, and that was our saving grace.” Perotti said that Frost has not been pressured to take TARP money from the federal government, like many other banks.


Still, Perotti said Frost is dealing with three or four times as many “problem assets” as they were before the economy collapsed, and they are obviously much more cautious about making loans then they were before. Perotti said Frost was embracing a “back to basics” approach. “Traditional banking will be the bedrock,” he said. “Deposits are good. Liquidity is crucial. And too big to fail is a reality.”


Perotti stressed that Frost Bank is still giving out loans, and explained exactly what they are looking for in a borrower these days. First of all, they want to lend to companies that don’t have high debt levels, and have a management team with depth and experience. “There’s no margin for error right now,” he said.


He explained that they are looking for companies with a coherent business plan and a specific purpose for the loan, as well as detailed financial information. He said that borrowers shouldn’t come to them just to shop rates. “Interest rates are going up,” he said. “Banks have not been getting a fair return on their loans.”


But, primarily, Perotti said Frost is looking for a partnership with borrowers. “We lend money to people, not things,” he said. He said the best thing for borrowers to do was to keep their bankers educated, make sure surprises are kept to a minimum, provide prompt and accurate financial information, and make sure that all the important decision makers are involved in every decision.


For it’s part, Perotti said that Frost would stick with relationships “even when difficult times occur.” These days, that’s the kind of commitment you can take to the bank.

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