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Vol. 14 No. 33 Des M oines, Iowa Decem ber 2 ,1985 Views on Restructuring Agriculture U RIN G the A B A National Agricultural Conference in Dal las lat month, one o f the best at tended concurrent seminars was the one devoted to “ Restructuring A gri culture.” M oderator Alan R. Tubbs, presi dent, First Central State Bank in DeW itt, la., described briefly the ag problem s o f today and the current status o f Farm Bill legislation. He then introduced the two panelists. The first was Dr. Michael D. Boehlje, head, Department o f Agricul tural and Applied Econom ics, the University o f Minnesota, St. Paul. The second was Frank W . Naylor, Jr., Under Secretary o f Agriculture for Small Community and Rural De velopm ent, U.S. Departm ent o f Agriculture, W ashington, D.C. Some o f Dr. B oehlje’s comments follow: The im pact o f financial stress in agriculture on the U.S. econom y m ight be visualized as a series o f waves. • The first wave will involve those highly-leveraged farmers who can not service their entire debt load. • A s these highly-leveraged farms attem pt to resolve their financial stress through the sale or other dis position o f assets, the rem ain in g farm population will incur costs in the form o f reduced land values and thus impaired credit worthiness because o f declining collateral. This is the second wave. D • The third wave occurs when farmers reduce their purchases o f capital item s from local suppliers and are not able to pay on open ac counts and trade credit extended by input supply firms. Thus, the local com m unity absorbs part o f the loss or cost because o f reduced retail sales and econom ic activity, as well as losses from non-payment on ac counts receivable and bankruptcies. One o f those institutions which will not receive payments from fi nancially stressed farmers is the lending institution. Adjustm ents Needed Five m ajor long-run adjustm ents appear necessary to obtain a more fi nancially stable agricultural sector: 1. Lower interest rates. A 1% de cline in interest rates on the over $200 billion o f U.S. agricultural debt would result in an approxim ate $2 billion increase in net farm income. A balanced budget would reduce the dollar value by 20%, lead to a 10% increase in exports in two years and perhaps 20% increase in the long run. 2. M othball excess capacity. W e have an estim ated 5% to 10% excess production capacity. Conversion o f 20-30 m illion acres o f steep, erosive and low-yielding grain land to grass or non-use is one way to elim in a te excess production and reduced soil erosion. 3. Lower resource values. Land values are 35-40% below the peak o f the early 1980s and may fall further. 4. Reduce debt. A bout one-third o f farmers owe approxim ately twothirds o f the debt. This “ excessive” debt must either be redistributed or eliminated. Probably a significant amount o f ag debt will be discharged or written o ff over the next 3-5 years by the public and private lending in stitutions that service agricul ture—at significant costs to lenders in the short run, and will im prove agriculture’s financial condition in the long run. 5. Restructuring asset ownership. Some farmers with very high debt loads cannot “ afford” to own all of their assets, and these must find new owners on the market. Assistance Program Beneficiaries A ny program should establish guidelines as to farmers, lenders and others who would reasonably be benefitted by the program. These are: • Farms so weak that debt and as set restructuring is not effective or feasible. This group is not restructurable and their m ost likely option is to exit agriculture. • Restructurable farms - those who can reorganize debts and assets and can becom e profitable under econom ic conditions likely to prevail over the next 5-10 years. This group RESTRUCTURING A G . . . (Turn to page 2, please) Call on the “Experienced Professionals” Ready to meet your correspondent needs. ^ F irst N a tio n a l L in co ln A FirsTier Bank Member. F.D.I.C 13th & M Streets, Lincoln, Nebraska 68501 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Norwest Bank Des Moines, N.A. Call (515) 245-3131 or toll-free (800) 362-2514 NORWEST BANKS Member FDIC We are interested in talking over your non performing commercial ag & real estate loans. For information call (402) 721-4514. Yearn work: one of the reasons we’re first in Iowa. 0Ê' Tom Quinlin John Rigler Are Problem Loans Keeping You Awake at Night? im prove cash flow may result. Long term benefits should not be over-es timated. M ay be encouraged by Fm HA 90% loan guarantee o f prin cipal if lender writes down debt at least 10% so debt cash flows. appointed director o f the correspon dent services division, which will in Iowa Bankers Insurance & Ser vices, Inc. will hold a Life Licensing clude the agriculture department. School on January 13-14 at the H oli He succeeds John M angold, who is retiring January 1. A lso announced day Inn - Capital Plaza, Des M oines. was the election o f Robert J. Louvar Fee for the school is $55 for bank ers and $65 for nonbankers. School as assistant vice president in the correspondent bank division. He hours are 9-5 the first day and 8-5 joins the bank with ten years bank the second day. For registration, contact Jeanette M. Ellington at ing experience. (800) 532-1423 or (515) 286-4371. SIO U X RAPID S: Jay Rehnstrom has been named an assistant vice CED AR RAPID S: Merchants Na president o f the First State Bank. tional Bank has announced the for m ation o f two new divisions. D. W il He previously was with Toy Na liam Coppock has been named direc tional Bank, Sioux City. Iowa News tor o f the new personal services divi sion and James H. Struve was ap pointed head o f the corporate ser vices division. Jerry N. Trudo was STORM LAK E: Security Trust and Savings Bank has recently an nounced the com pletion o f its re m odeling and expansion project. The bank will be holding an open house for all bankers and their spouses on Saturday, December 7, from 2-5:00 p.m. Nebraska News LINCOLN: Lincoln Bank South re cently elected Carol A . Jones as op erations & com pliance officer. Minnesota News ASK GARY BARTLETT to make MNB work for you. Toll free 1- 800- 332-5991 Merchants A National Bank 151 Member F.D.I.C. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A BANKS OF IOWA BANK SAIN T PAUL: Jane K. D odge has been prom oted to vice president o f consumer banking and Sandra K. Johnson to assistant vice president in trust at American National Bank. RESTRUCTURING A G . . . (Continued from page 1) includes farmers with return to equi ty from - 20% to + 5% in 1984. • Profitable farms - those which earned more than 5% on equity in 1984. A lso includes possible or re cent entrants who have taken ad vantage o f lower asset values and started farming. Policies to A id Transition Five o f the more frequently dis cussed policies are: 1. Debt Restructuring. Rewriting debt to longer term can be useful for those who need marginal help, and 5. Inventorying or facilitating changes in ownership patterns o f assets. Lending institutions m ight be encouraged to take title to property in lieu o f debt obligations and lease back to the original debtor. Then, other resources such as machinery and equipment would not require li quidation. To avoid lender illiquidi ty on such loans, the government would likely need to provide funds (Fed window or guaranteed bonds). Original debtor has first option to buy. Programs needed to hold land o ff the market, and rules eased for lenders holding land. 6. Other. Three additional ap proaches deserve brief mention. A. Farm price and incom e policies have been a traditional approach to raise cdfotdsx a n d cdfi.ioo.Latz.'i Bank Consultants Specializing in Bank Acquisitions P.O. Box 450 515-232-0814 405 Main Ames, Iowa 50010 D o n a l d E. H o l d e r , Principal § • ® Supplem ent to N orthw estern B anker N ew sletter 12-2-85 . . . it’s a fact o f life. But now you can offer your customers more car for less money! 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M onetary and fiscal policies — lower real and nominal interest rates would be helpful to the entire ag sector. C. Increased attention should be given to program s and policies to help people make the transition out o f farming. U SDA’s Naylor Speaks Under Secretary Frank N aylor's comments follow. Mike has laid out the options with which we have to deal. Two actions are under way in W ashington to deal with them: First, the Farm Bill and, second, the Farm Credit System proposal. Regarding the Farm Bill, the House Bill has m ajor problems. The present Senate Bill - or both - would be vetoed. This might be a cop-out for Congressional members who, after a veto, could then work on a Farm Bill in a totally different envir onment. There is no small risk that we may go into the next session o f Congress with a vetoed bill, or one in doubt. If they don't get it resolved prior to Christmas, Congress resumes January 20, takes two quick vaca tions and you're then in April and May. W e must have a significant reduc tion in the loan rate and the opposite side o f this • a target price. How do you deal with income transfer pay ments we must make over the next 4-5 years, and to what extent do we support income in that period? The irony o f the farm er's current income supports is that they haven't worked and need change. I can't see where a consensus will com e in Congress. Where do we get income for farmers for the income transfer period? FCS Second M ajor Issue The second m ajor issue is the Farm Credit System. Here is our perspective and what we are evalu ating. Because o f wide variances in ac counting system s it is im possible to make meaningful com parisons. A top team o f the Treasury has been on this jo b two months and Price W aterhouse is on the outside for the first time in FCS history. I doubt if we will have the full story on FCS' true condition by even year-end. The initial report shows a $500 to $600 million loss, due to re-assign ment o f money to reserves. If cor rect accounting procedures were ap plied to the entire system it would be showing a profit! https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 Make The National Bank o f W aterloo your custodian bank! • The N ational B ank o f Waterloo is an approved custodian bank fo r the state o f Iowa. • Fast, efficient com puterized reporting system. • Provides pledging system to secure p u b lic funds. • Low, lo w m onthly fees under o u r system. W e accepted their own numbers in looking at the need to deal with $13 billion in problem loans the next few years. The prospective loss on these loans the next six years is $6 billion. They can fully reserve $3 bil lion in three years, and by 1988 could turn around into a strong, pro fitable system. This is using their own numbers, which are worse than we think they are. A t their worst point - in late '87 -they should still have $500 million in reserve and more than a billion in capital. Is the problem m assive? Yes. The issue o f federal intervention revolves around FCS assisting itself and having access to the Fed win dow. Steps FCS Must Take W e've insisted on them taking two steps: 1. Eliminate the management role o f the FCA and make it a twin to the Comptroller o f the Currency - a regu lator. 2. Marshal and utilize their re sources within the system. If the FCS bill has $6 billion o f credit help in it, it will never see the light o f day. Seven Congressional Committees want a piece o f the ac tion on this bill so it will require very close cooperation o f all parties. It will be difficult, but not im possible. N othing for Banks So far as commercial banks are concerned, nothing is anticipated in this bill and I don’t think there will be. The best bet for them is the inter est rate buy-down proposal. W e either deal with this bill now, or it carries into the next session. (Ed note: An omen? When Mr. Naylor, in response to a question said he “ couldn’t see any realistic m ove in Congress to m ove the FCS bill to the Senate A g Com m ittee,” as requested by A B A , the A B A logo sign on the podium chose that exact moment to jar loose and fall to the floor with a thud!) □ Call: 319-291-5235 for complete details. Write: Attn: Don Stonewall, Vice President The National Bank of W aterloo 100 E. Park Avenue Waterloo, IA 50703 Serving bankers quietly and efficiently. CAPITAL PERSONNEL SERVICE 714 F irst Interstate Bank B uilding Des M oines, Iowa 50309 515-283-2545 CONTINUING EDUCATION LIFE & HEALTH 10 hours/1 day - December 11 Adventureland Inn, Des Moines Pre-registration $55.00 Registration at door - $65.00 Call: American Equltel Insurance Agency (515) 276-6168 Come to the Investment Specialists committed to quality. 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Send resume to Bob Scott, Boone State Bank, (515)432-6200.__________________________________ (PA) COLLECTIONS, AQ & INSTALMENT LENDING. Prefer strong collection background or Finance Co. experience and business degree. Good loan documentation skills and farm background a plus. Evening educational opportunity, Mankato State Univ., 23 miles. Will train In lending if need be. Good salary 15 to 30K commensurate with experience. Send resume, grades, & salary requirements, confidential, c/o Personnel Director, Security National Bank of Amboy, MN 56010.______________________________________ (PA) R For Prompt, Courteous, Professional Attention T o Y o u r S t a ffin g Needs, Call On Us. _____________________- 1102 Grand Avenue, Kansas City, MO 64106 SENIOR COMMERCIAL LENDER for $100 million bank In community of 15,000 in upper mid-west..........Salary open LOAN REVIEW OFFICER for eastern Iowa bank, lending and examiner experience a p lu s ...................... 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Available Spring 1986 Equipment Optional If interested please call Dennis Prchal at (612) 224-1371 (FS) Estate Appraisals (816) 471-4206 Purchase of Collections POSITIONS AVAILABLE BANKING OPPORTUNITIES PRESIDENT—$45mm MN ag bank. Well capita lized. ROA 1.4 in 1984 & 1985. $55K. COMMERCIAL LENDER • Need 2 + years in com mercial lending. Omaha. To $30K. PRESIDENT—$50mm IA bank. $50K. AG LENDER—$100mm SD bank. $30 K. All fees are paid by our client employers. AG LENDER—$70mm IA bank. $30 K. CASHIER—$50mm West IL bank. $30 K. Richard L. Beam, CPC QUMBERT EXECUTIVE EXCHANGE, INC. 11246 Davenport Street Omaha, NE 68154 Phone: 402/330-3260 Member National Personnel Associates We’re Nationwide EXECUTIVE VICE PRESIDENT for eastern Iowa bank, must have well rounded background in both operations and lending .......................................................Salary High $40’s AG LENDER for progressive South Dakota bank, located in major com m unity...........................................Salary $25,000 RECRUITERS, INC. Sound mid-west metro area bank seeks presidentCEO who wants an equity position as well as op portunity to oversee entire operation. For a confi dential interview, contact Larry Halley, Dlv. Mgr., Banking and Financial Division: AG LENDERS • W. Central Iowa. Need 2-3 years experience. Need 2 people. $25-30K. SENIOR INVESTMENT OFFICER for major midwest bank. Requires experience in bank of $200 million in a s s e ts ----............................................................................... 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FOR FURTHER INFORMATION FOR THESE & OTHER POSITIONS RESPOND IN CONFIDENCE TO: KURT ROSENCRANTS AT (515) 244-4414 WORLD’S LARGEST BANKING, DATA PROCESSING & FINANCIAL SPECIALIST R O BER T BflflLF 317 6th Ave, Ste. 650 Des Moines, IA 50309 (515) 244-4414 ALL FEES COMPANY PAID 3017 CAREERS, INC. AG BANKING PERSONNEL SPECIALISTS BANK POSITIONS Small Northwest Iowa bank needs SENIOR OFFI CER to be in charge. Daily management of bank. Must have 5 years bank experience with main em phasis on Ag loans and management. This is a very clean bank with good growth potential. Salary to $38,000. AG REP in small eastern Iowa bank. Assist EVP with Ag loans FmHA. Will have opportunity to learn all aspects of banking. Requires 1 - 2 years Ag lending experience from bank, FmHA, or farm credit system. $20,000. Confidential No contacts made without prior consent & approval. 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TOM HAGAN & ASSOCIATES 2024 Swift - Box 12346 North Kansas City, MO 64116 816/474-6874 “ Serving the Banking Industry Since 1970” Vol.14 No. 33 Northwestern Banker Newsletter (USPS 873-300) is published weekly by the Northwestern Banker Company, 1535 Linden Street, Suite 201, Des Moines, Iowa 50309, (515) 244-8163. Subscriptions $1.00 per copy, $18.00 per year. Second class postage paid at Des Moines, Iowa. Address all mall subscriptions, changes of address (Form 3579), manuscripts, mail Items to above address. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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