St. Paul, Minn.
A large agricultural lender is about to offer one of the biggest deals in farmland - a money-back guarantee. The St. Paul district of the Farm Credit System will offer to sell thousands of acres of farmland with a guarantee: If the farmers don't want it, the district will buy it back three years later. That's the key element of the plan expected to be announced this afternoon.
``We're going to do something that has never been done before,'' says Larry Buegler, the district's chief executive officer. ``And we're going to sell an awful lot of land.''
The sale in St. Paul is a sign of the extraordinary crisis facing the Farm Credit System, the nation's largest agricultural lender. At a time when many farm banks are pulling themselves out of the six-year downturn in agriculture, the lending cooperative appears to be sinking deeper into disaster. In the next few months, at least two of the system's 12 districts are expected to run out of collateral. Sometime in 1988, the whole system will run out of collateral, according to the system's regulator.
In fact, Farm Credit's financial crisis is so large that it has all but stalled the leadership of some districts, according to several analysts. ``I see plans and budgets, but this is crisis time,'' says Hugh Macklin, the president of the system's restructuring unit, the Farm Credit Capital Corporation. ``Someone's got to turn on the sense of urgency.''
Some districts seem to have given up trying to solve their problems and are waiting for a government bailout, adds a Washington official close to the situation.
The St. Paul district contrasts with that gloomy scenario. The land sale is only the latest in the district's aggressive effort to solve its problems. By using eye-catching, low-interest deals, the district sold more than 357,000 acquired acres, worth $176.5 million, during the first three months of this year. Mr. Buegler expects to sell even more land with this latest plan. Like most Farm Credit districts, St. Paul has huge holdings of land because many of its borrowers couldn't pay back their loans and turned back their land instead.
The district has also aggressively restructured its troubled loans. In the first four months of this year, it reached final settlements with nearly 6,300 borrowers who could no longer pay the interest on their loans, 500 more than the much larger Capital Corporation, operating in four districts, resolved in the same period.
Several analysts say St. Paul may have been too aggressive in restructuring loans and could fall into a deeper financial hole if many of those loans go bad. Still, it wins high marks for moving in a clear direction. ``They're making the effort, and a very aggressive effort, to turn things around, which stands out in contrast to some of our other institutions that just haven't taken that kind of action,'' says Frank Naylor, chairman of the system's regulator, the Farm Credit Administration.
The most troubled and inactive district is based in Jackson, Miss., according to system officials. While St. Paul restructured 2,800 loans, that left farmers in control of their operations during the first four months of this year, Jackson managed only 74. Its long-term lending arm has made only $11 million in new loans, according to a recent examination by the system's regulator.
The Spokane, Wash., district is also in deep financial trouble, analysts say, partly because it has been slow to restructure loans - only 140 in the first five months of this year - and partly because of the $187.7 million in surplus funds that it gave up last year to help other troubled districts.