Jack Rodman has developed that disconcerting habit shared by many high-profile sportsmen and other celebrities of using the third person when he talks about himself. And he likes to talk about himself.
“Jack is definitely a visionary and a thought leader,” he says. “He documented and diagnosed the problems before anyone else, has unrelenting aggression on this topic and is quoted on the subject more than anyone else in the world. He knows everyone in the banks, every investor and all the people in the industry.”
Ernst&Young’s managing director, Asia Pacific financial solutions, could perhaps be accused of immodesty. He won’t have it. “I’m not being immodest because I’m an expert on the subject,” he says.
The subject under discussion is Asia’s non-performing loans. Rodman admits that he is obsessed with the subject. “I can see all the problems in the world being cured by the resolution of NPLs,” he says. “I am a missionary on a mission.” He adds: “In fact I’ve also been described as evangelical, and the godfather of NPLs.”
After an MBA from the University of California, Los Angeles, in 1971, Rodman went to work for accounting firm Kenneth Leventhal&Company.
Thirty years and a merger with Ernst&Young later, Rodman is still there. He explains why: “My dad worked in Yellow Cabs in Los Angeles from the 1940s through to his retirement. And I believe in generational theories. I went to college and started working for an accountancy firm. It’s not a particularly entrepreneurial business but I have been there my whole life and have been pretty successful.”
It was in the late 1980s, early 1990s that Rodman began making a name for himself. He wrote a report outlining the huge investment Japan was making into US real estate. “Their currency went from ¥240 to ¥120 to the dollar overnight,” he says, “and they could earn 6% to 8% on the best buildings in New York, Los Angeles and Chicago. And their banks were willing to lend them everything.”
The main man
However, the Japanese party came to a shuddering halt in the early 1990s when the real estate bubble in the US popped and values plummeted.
For Rodman it was an opportunity. He realized that the Japanese banks had 40% of their portfolios invested in real estate, 20% directly and 20% indirectly through developers and construction companies. The banks had $5 trillion in assets with $2 trillion in property. He says: “The value of the collateral had fallen by half. I started calling the Japanese ministries because I wanted to know how much had been recorded as loan-loss reserves. I started to preach but couldn’t get a bank to hire me to work this stuff out. I told them that I could get someone to buy the stuff but they said they didn’t have a problem.”
In 1995, the Bank of Japan realized it did have a problem and started looking at the US’s Resolution Trust Corporation as one model for the possible solution. Its officials also asked to meet Rodman to get his views. As Rodman puts it: “I’d been studying Japanese investment in US real estate since 1985. I was the guy.”
In 1997 Rodman started working on his first Asian distressed asset transaction. He received a call from Bankers Trust in Japan asking him and his team to review 300 loans that the bank wanted to bid for. “They said because I didn’t know how to do it in Japan they wanted me on the cheap. I said ‘OK, you pay my air costs, but if you win pay me my standard billing rights.'” BT won, paying 3.5 cents on the dollar for the loans.
A couple of weeks later, on Christmas day, Mitsui Trust&Banking asked Rodman to run the first ever loan auction in Japan. “We were up and running,” he says. Or so he thought.
The sale of non-performing loans hasn’t progressed as quickly as he or anyone else would like and still hasn’t. “In Japan, I feel like Charlie Brown. Every year he wanted to kick the football. But Lucy was there and he would end up flat on his back. I still haven’t kicked the football in Japan.”
Rodman’s mandate now covers all of Asia. He points out that he used to have seven addresses on his business card. He divides his time now between Beijing, Tokyo, Taiwan and the Philippines, advising governments and banks how best to dispose of the NPLs.
Let’s get on with it
“They have to come off the balance sheet very quickly,” he says. “It is the solution for the financial malaise that is affecting Asia. And getting $20 billion to $30 billion in capital from the opportunity funds that want to buy the stuff is definitely the right engine to drive it.”
Despite the assurances of governments around the region that they are facing up to the problems and flushing their systems clean, NPLs are still on the rise.
In 2000 Rodman and his crew wrote a report, stating that NPLs in the region amounted to $1.5 trillion. However, Rodman’s new report, Non Performing Loan Report: Asia 2002, released on July 11, states that in the past two years that figure rose by around 33%, to just over $2 trillion.
Rodman explains: “The biggest single failure in Asia is to get these deteriorating assets off the balance sheet and into the hands of the private sector.
“It’s a myth when countries say that their NPL ratios have declined. When the NPLs are transferred to an asset management company, you still have a loan that is non-performing, it’s just that someone else in the government owns it.”
Rodman understands that the governments are under extreme pressure not to sell the assets on the cheap, especially to foreigners. But he doesn’t think they have a choice and is determined to make that clear.
“They need to know the ramifications and the cost to the country. I have a lot of preaching to do.” He adds: “On my epitaph I want written ‘He was right. We should have sold them sooner.'”
Away from the NPLs that dominate his life, Rodman admits to being a bit of a collector. Wines and cufflinks top the list.
He then confesses to having some distressed assets of his own. “I went to see a man and he had a collection of 28 stuffed animal heads. They were magnificent. He needed the money, so I bought the lot.”
