Montana Banks Watch Wall Street, Feel the Tremors

By Robert Struckman, 9-19-08

As the fallout from the housing crash continues to reverberate on Wall Street, Montana banks have been re-appraising balance sheets, taking another hard look at collateral and reassuring Main Street businesses, which have begun to feel the economic slump.

“All the stuff that’s happened… doesn’t affect but a handful of banks in the state, if any,” said Michael Richards, president of Bank of Bozeman, who was referring to the collapse of the investment firm Lehman Brothers and the $85 billion bailout of the international insurance group and financial services company AIG.

The real estate collapse, basically, is what dragged down those two companies, as well as investment firm Merrill Lynch.

Here’s what Montana bankers have to say about the effects of the nation’s slowing economy and the state’s real estate industry:

Declining real estate values don’t directly change the balance sheet of most banks in the state, because those debts have been packaged and sold on the secondary market as securities (some of them contributing in a small way to the collapse of the titans like Lehman Brothers).

Commercial real estate, on the other hand, generally does remain on a bank’s books as collateral.

Bankers have been looking again at commercial developments, and refiguring the value of that collateral. The fear—like that of homebuyers in a down market—is that the bank will find itself upside down, with more money lent to a developer than the development is worth. That’s bad.

But, other bankers said, that’s only a problem in the bank’s customer goes out of business or can’t complete the development, and the bank ends up foreclosing on the over-valued property.

For Dick Morgan, chief financial officer of the Helena-based Mountain West Bank, that’s not the preferred scenario. His bank’s customers have begun to feel the effects of the economy, but that’s when a good banker can improve his own lot by working with customers.

“The businesses up and down Main Street are affected a bit. They’ve got some trickle down,” he said. “We’re optimistic about weathering the financial struggles.”

Of the reviews of the strength of businesses and the value of collateral, “that’s going on all the time,” said Richards of Bank of Bozeman. Each deal is different, he added, as is each property and, really, each bank. “It’s hard to make generalities.”

There is one thing every Montana bank has in common lately: “We’re getting a lot of questions from customers worried about their money…. Is it safe?” said Morgan.

“That’s one of the cool things, really. We have the same exact insurance—the FDIC insures each account to $100,000,” said Richards. “You go to Wells Fargo of here. We can structure your accounts the same way to get the same insurance. People forget that.”

Richards added, “You kind of have to put it in perspective a little. We’re a little insulated here in Montana.”

Like this story? Get more! Sign up for our free newsletters.