RED (Retired, Extremely Dangerous) is a 2010 movie starring Bruce Willis, Morgan Freeman and Hellen Mirren about retired CIA agents who possess too much info, literally. We are about to enter the RED zone, but for banking instead of football. The big banks, as part of cost cutting exercises, spent the past several years focused on expense ratios. The senior, experienced special assets executives were some of the first in-line for cost cuts the past several years given historically low write-offs pre-COVID. These folks are Retired, Extremely Dangerous for their proven abilities, knowledge base and knowing exactly which banks are hiding special mention credits from regulators. In a work-out, a battle of wills is a plain old battle of battle of wills, but a battle of minds comes down to knowledge and experience and that is hard to replace. We are entering a cycle where many of the battle tested folks from the last cycle are in the RED zone and now entertaining what to do next.
Workouts are war and come down to three things: 1. Business/lending, 2. law and 3. psychology. Good luck mastering even one of the aforementioned qualities let alone all three of them. Each recession is different and each credit is unique in its own nature whether it be the actual business, the collateral position or a stubborn owner. The folks who fought and learned this the last go-around either retired from the work or were pushed out from lack of work as the last economic boom lasted longer than expected. So here we are with whole lot of REDs out there on the sidelines. The difference this time around is that for the skilled ones who do want to work they don’t necessarily have to go back to working at a bank. Bruce Willis epitomized this well when in the movie the CIA realized that some of its best assets were no longer its best assets.
Many REDs have now opted to go private and turn to the WAY higher paid dark side of turnaround consulting or distressed lending. They now even occasionally find themselves on the other side of the table from the same bank that used to employ them. Try being at the CIA and then going to be a private contractor or worse another government. You are now being paid to use your training against the system that trained you. The training to become an expert in work-outs should not be taken for granted. Let’s go back to key points of 1. Business/lending, 2. Law and 3. Psychology. The training for all of these is multi-faceted and highly experiential. You can’t be great unless you can master all and once you do you get rewarded with more work and complex problems. The problem is that due to a great economy the banks no longer needed many of these skilled professionals until they did need them right after they put many out to pasture.
RED is real my friends. The last recession trained some phenomenal professionals and then the last economic boom both gave them some savings and put them out of a job. Some are content to just golf, but many are restless and not all are going back to the banks who desperately need them. Let’s just stop for a second and not underestimate this. What’s it worth to a company or take-out lender to know that a bank has a real loan loss reserve issue or tacitly knows their collateral is not in good stead. In comes their former employee on the other side of the table to extract full value for a turnaround firm to help exit the client at a discount or negotiate favorable forbearance terms. This is the situation we are in and think about how many folks from senior management are now on the beach thinking about how they don’t want to miss out on their last cycle.
Many simply enjoy the solving the puzzle of work-outs as well as the rush. Liam Neeson said it best in the movie Taken: “If you are looking for ransom I can tell you I don't have money, but what I do have are a very particular set of skills. Skills I have acquired over a very long career. Skills that make me a nightmare for people like you.” In this case, the irony is that “you” does not necessarily refer to the “debtor”, but to the banking system that made the mistake of losing their REDs to turnaround firms and distressed firms.These folks have the skills and the know-how to get below market deals from under-trained special assets executives who are still learning their craft.The REDs are out there and this time around they putting their services to work for the highest bidder.Be careful when entering the RED zone as these folks are armed and dangerous with a particular set of work-out skills!
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