Real estate's ripples

Kalispell-based Provident Financial, a small investment and loan company, sent a letter last week to its some 500 investors describing the "perfect storm" that's forcing the 20-year-old company to close its doors.

"First, understand you have NOT lost all your money," reads the letter, signed by President Brad Walterskirchen. "The company still has assets backed mainly by real estate which have value. It is our intention to wind down operations and work closely with you, our investor, to conduct an 'orderly liquidation' of these assets, the proceeds of which shall be paid to you."

Two days before, Provident had filed for Chapter 11 bankruptcy protection because the poor economy, specifically the hobbling housing market, turned its business upside down. Ever since the stock market tanked, more and more investors are coming to Provident asking for their money, and Provident, with its assets tied to devaluing real estate, foresees payout amounts exceeding its liquidity, a recipe for insolvency.

"We just don't have boxes of cash lying around here for when people come in wanting their money," Walterskirchen says. "It's invested in real estate. It's invested in loans to individuals secured by real estate."

He likens the situation to It's a Wonderful Life, in which Jimmy Stewart says to bank depositors who want their cash, "Your money is in Joe's house. That's right next to yours, and in the Kennedy house and Mrs. Macklin's house and a hundred others."

The Federal Deposit Insurance Corporation (FDIC) has protected depositors from this since the Great Depression, but Provident, not being a commercial bank, isn't FDIC-insured.

"This is what would happen to banks before there was an FDIC," explains Missoula-based attorney Harold Dye, who's representing Provident in bankruptcy court.

Provident's assets, Walterskirchen says, are valued at about $38.9 million, while its liabilities are valued at about $37. 9 million.

The company's already cut its staff from 16 to 10. It also reduced salaries and benefits. More cuts are imminent as the company slowly dissolves.

"Everything we can do we've done...," says Walterskirchen.

This story was updated on Sept. 21.
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