Pub. 6 2011-2012 Issue 1

May/June 2011 25 Extraordinary Service for Extraordinary Members. To contact Bert Ely, e-mail bert@ely-co.com; fax (703) 836-1403; phone (703) 836-4101; or mail PO Box 320700, Alexandria, Va. 22320. FCS of the Virginias Takes a Bath in Kluge Winery Auction On April 7, the 901-acre Kluge Estate Winery and Vine- yard, near Charlottesville, Va., was sold at absolute auction by FCS of the Virginias (FCSV) for just $8.1 million. FCSV acquired the winery in December for $19million in a foreclo- sure auction after Patricia Kluge and her husband defaulted on a $34.8 million FCSV loan to the winery. As had been rumored for weeks, The Donald (Trump) beat out other bid- ders for 776 acres and the winery operation. Trump declared, “I’m really interested in good real estate, not somuch inwine. This place had a $28 million mortgage on it, and I bought it for $6.2 million. It’s a Trump deal!” Someone else bought the remaining acreage for $1.87 million. The Donald may have gotten a great deal, but the Kluge loan was a disaster for FCSV and whoever participated in that loan. Based on the reported selling price, the FCS took almost a $27 million loss on the loan principal, or about 77 percent. Foregone interest, operating losses while FCSV owned the winery, and selling costs, less the proceeds from the sale of winery assets, undoubtedly added a few million dollars to the loss, possibly putting it in the $30 million range. Almost certainly, the Kluge loan is one of the largest individual loan losses the FCS has taken in recent years. In 2010, FCS charge-offs on real estate mortgages totaled $236 million while charge-offs on production and intermediate- term loans reached $221 million. It will be interesting to read the FCSV discussion of this lending fiasco in its first-quarter 2011 report to its shareholders. Report FCS Lending Abuses Bankers are continuing to send Farm Credit Watch (FCW) reports of FCS lending abuses such as FCS loans for rural estates, weekend getaways, and hunting preserves. E-mail reports of similar lending abuses in your market to green-acres@ely-co.com. Please provide as much detail as possible about any loan that violates the spirit, if not the law, governing FCS lending. Farm Credit Watch Free to ABA Members If your bank belongs to the American Bankers Association (ABA), you can enjoy a free e-mail subscription to FCWor you can read it monthly online at www.aba.com. To receive FCW by e-mail or to manage your subscription, visit ABA E-Mail Bulletins at www.aba.comand check or uncheck the appropri- ate boxes. For other inquiries, please contact Barbara McCoy at the ABA at 800-BANKER. Z experience guidance How will you get where you want to go? BKD National Financial Services Group can help you choose the right path with more than 180 professionals who have the expertise you need to help improve performance, reduce risk, lower costs and stay in compliance. Learn more at bkd.com . experience Lincoln 402.473.7600 Omaha 402.392.1040