Daily Press - Bank Grabs Everything

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July 04, 2008

Stores close as bank grabs everything: David Nygaard said he was surprised when the bank came in and seized all of his inventory.
(Daily Press (Newport News, VA) (KRT) Via Acquire Media NewsEdge) Jul. 4--After suddenly getting all of its inventory seized and liquidated by Wachovia Bank last week, David Nygaard Fine Jewelers closed its seven stores on Monday.

Owner David Nygaard claims he was current with his regular payments, but Wachovia invoked a clause that allowed the bank to call in the full amount of all of his long-term loans in April. Nygaard said he was liquidating his inventory in a bid to survive when Wachovia seized more than $1 million worth of jewelry last Wednesday.

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He said the bank sold the inventory, now sitting in a giant safe he cannot get into, for 25 cents on the dollar -- right before closing its books on the second quarter of the year. That inventory does not include jewelry that customers gave to the stores for repairs.

Nygaard plans to let those customers know how and when they can pick up their items. As for any money put down for deposits, that was put in bank accounts that Wachovia and other banks have seized. He is not sure how it will be accessed.

With banks struggling with problem loans, they are getting tighter with credit and strictly enforcing loan agreements even if it means taking a huge loss on a problematic loan. Nygaard believes he was caught in a confluence of economic conditions that he could have survived if the bank had not acted against him so quickly.

"Wachovia stripped our accounts, and the other banks started following suit," said Nygaard. "There may not be any cash because the banks just took it."

Customer privacy laws prevent Wachovia from telling its side of the story, the bank said.

"Wachovia is committed to helping its customers during tough economic times," said the company in a statement, "and we continue to actively lend to customers. However, as always we must manage risk appropriately."

In addition to a standard loan to meet working capital needs, Nygaard borrowed money last year to open a store in Norfolk. And he was buying raw materials overseas and using his own in-house jewelry-making operation to execute a made-to-order model of retailing.

"It worked very well and we were pleased," said Nygaard.

But following a slow Christmas, Nygaard was facing a slowing economy and sharply rising gold prices that increased his needs for working capital in January. He also faced competitors going out of business and liquidating their jewelry at low prices that were hard to compete with.

In the meantime, Friedman's Jewelers and Whitehall Jewelers have gone bankrupt this year.

Nygaard says he asked the bank if it wanted him to sell off as much as he could at low prices to keep money coming in, or to increase his line of credit loan. The bank chose the latter. But then they said in April that he had missed a payment the previous year and were concerned about the jewelry business, he said.

That allowed Wachovia to request full repayment of his $1.6 million of loans in two months, he said.

With that short time, Nygaard couldn't find another bank to take over the loans. He says he never missed the payments, and was shocked when they told him he owed money on an old loan.

Since April, Nygaard says he has been trying to keep the business afloat through an orderly sell-off of his inventory. But he didn't sell enough to pay it off.

"We started a fairly destructive liquidation process that started in April to meet their requirements," said Nygaard.

He was also cutting costs, and lost less money in May than he did a year ago.

"Our numbers actually looked better this year because we cut so much of our expenses," he said.

But it wasn't enough, he said, and the bank suddenly came in a week ago and said they were taking $800,000 worth of jewelry -- basically all of his pieces -- as collateral. He still owes more money to the bank and expects he will need to file for bankruptcy.

He wasn't completely surprised that the bank came after him in June after they claimed he had to repay every loan, but was surprised the way it happened.

"I didn't think the default was going to look quite like that," said Nygaard. "I thought that was pretty draconian."

Nygaard opened his first Peninsula store in November 2005 in Williamsburg at the Windsor Meade Shopping Center off of Route 199. Then he opened another spot in Newport News at the newly-opened Jefferson Commons Shopping Center off Jefferson Avenue in 2006.

Thirty-five employees at the stores lost their jobs.

The seized inventory was bought for $800,000 and had a market value of between $1 million and $1.2 million. Wachovia immediately sold it to a liquidator for $240,000. The bank will write off the remainder of the $1.6 million loan as a loss in the upcoming quarterly report.

Nygaard believes they are desperately trying to get any loans they view as risky off the books. Federal regulators have become concerned with bad loans to businesses. Wall Street wants to see them wiped off the balance sheets to make the financial system stable following the crisis caused by the subprime lending mess.

With only personal assets left to repay the loan, Nygaard and his six children fear the house is next.

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