"Let's get the deal done and worry about the details later."
Aaron Clarey was supposed to warn credit unions about whether investing in a snowplow company or a $65 million condominium project in Minneapolis was risky.
Instead, he says, he was pressured to make projects look sounder than they were and to keep the money flowing.
Clarey spent 18 months analyzing commercial loan deals at CU Companies Inc. of New Brighton. He would rate projects on a 10-point scale: 1 was the soundest, 10 the riskiest.
He said superiors told him to redo his analysis when the risk rating was considered too high to get a deal financed. That often meant searching through a borrower's personal assets to find more income.
In other cases, he said, he was occasionally asked to revise his ratings based on subjective criteria, such as "character of the borrower," that didn't normally figure into his analysis.
"The economy was booming, and the attitude was, 'Look at all the deals we can make,'" said Clarey, who worked at CU Companies in 2005 and 2006. "All this money, all this money. Let's get the deal done and worry about the details later."
CU Companies is the state's largest credit union service organization, or CUSO. These are for-profit entities that underwrite loans and provide investment and other services to credit unions. Minnesota's credit unions often relied on them to do the homework when looking at possible loans.
A few credit union executives who have done deals with CU Companies said they would not even consider a transaction if the score was higher than a 5.
Brad Crandall, chief executive at CU Companies, said he was unaware of any instances where Clarey was pressured to change his analysis. He said his firm's analysis of commercial loans is done by a "talented team" of commercial lenders with more than 20 years' experience.
"He's providing a false sense of what's going on," Crandall said, noting his firm only recommends loans and doesn't actually approve them on behalf of credit unions.
The 100-person firm has a commercial lending subsidiary, CU Member Business, that searches for businesses in need of loans, reviews their creditworthiness and occasionally finances large deals by pooling loans from credit unions. In five years, CU Member Business has amassed a commercial loan portfolio of $75 million to $100 million.
Nationally, about 28 percent of credit unions own stakes in CUSOs worth a total of $1.12 billion, according to Callahan & Associates, a credit union consulting firm. The largest of these firms pool loans from individual credit unions all over the country to finance an array of projects -- from condominiums in south Florida to rights to operate cabs in New York City. They typically earn a fee for the transactions but put none of their own money into the deals.
"Some of this gets pretty ridiculous," said Bill Winter, president of St. Cloud Federal Credit Union, who said he receives several e-mails a month from CUSOs pitching deals. "I mean, what does a Midwest credit union know about operating a cab in New York?"
Clarey estimates only about 20 percent of the risk ratings he placed on commercial loans for CU Member Business were reliable. The rest were either too optimistic or based on inadequate data, he said.
"I foolishly assumed that my services as a credit analyst were actually of value," Clarey said. "In fact, most of what I did was window dressing."
Chris Serres • 612-673-4308