Former Hedge Trader Discovers New Risk Career Salvaging ANB Assets

Brian Ferguson wasn't sure which direction to take his career after marriage brought him to Rogers in 2008. The veteran hedge fund trader looked into buying a refrigeration business and chewed on the advice of a friend: wait six months, look around northwest Arkansas, listen to what's happening and determine where you can make money.

Ferguson cut the recon work short after reading a news article about the May 9 closing of Bentonville's ANB Financial and the future sale of its assets by federal regulators.

"I took your advice," the admittedly restless Ferguson told his friend, "and waited 12 hours. I now know what I'm going to do."

His decision to bid on ANB assets ultimately led him to form Ozark Asset Management, overseeing a $260 million portfolio of 540 nonperforming loans secured by Arkansas property for an Idaho investment group.

This portfolio was part of the ANB Venture package of 1,112 loans totaling more than $1.1 billion that Kingston Management Services LLC of Idaho Falls acquired in a $20.1 million structured sale with the Federal Deposit Insurance Corp. in January 2009.

Along the way, Ferguson also formed Ozark Property Investors and made his own ANB asset purchases.

"Brian is a brutally honest observer of the northwest Arkansas real estate scene," said Ramsay Ball, a principal with the Bentonville office of Colliers International. "He is not faint-hearted."

Two years ago, Ferguson was an ocean away in London with management duties that included trading massive bundles of European mortgages. "This is my first time on the ground with mortgages," the 48-year-old said. "I've never had more fun in my life than the last 18 months."

Sorting through the mortgage mayhem generated by ANB has kept him busy. He has educated himself on bidding on distressed assets and learned what the local market will truly bear for land prices.

The latter is an art as much as a science in these post-bubble days. Rural Benton County is a quilt work of doomed real estate plays, all too often stitched together by fantastical loan-to-value ratios and embroidered with unrealistic expectations.

"I don't know what people were thinking, what lenders were thinking," Ferguson said. "The ANB ones seem to be the worst."

He muses on a marketing twist for a 52-acre hay meadow in the suburbs of the Vaughn community booked by ANB as a $2.7 million commercial site. That's nearly $52,000-an-acre grass.

"Do you think the beef tastes better from cattle grazing on commercial pastureland?" Ferguson wonders.

Such properties provide a challenge to maintaining the 55 percent recovery on ANB Venture loans in Arkansas.

His mission remains scrawled on a dry board in his Rogers office war room on the third floor of the J.B. Hunt Parkway Tower: "Our goal is to collect every possible dollar achievable from every single piece of collateral and signature."

According to Kingston Management, the investment group recouped its $20 million investment after only nine months. That work encompassed a 47 percent average recovery from settling about 300 ANB Venture loans, representing about 20 percent of the portfolio.

Getting in the Game

Ferguson waded into the great ANB selloff by bidding on and sometimes acquiring individual properties the FDIC put on the block. He hoped regulators would sell the non-performing loan pool in bite-sized pieces, as it had with other ANB assets.

"They put everything in this big pool, and it broke my heart," Ferguson said.

He scrambled to put together an investor group to bid on the $1.1 billion portfolio, working with SK Hart of Salt Lake City. But Kingston Management Services posted the winning offer.

"I worked for six months on the deal," Ferguson said. "I'm not a guy who gives up very easily."

He flew to Idaho to meet with Kingston execs. Ferguson hoped to persuade them not to flip the portfolio for a quick profit and instead let him manage the assets for an even bigger return on their investment.

After surviving a fractious first meeting, he won them over with his knowledge of the Benton County assets and his experience as an investment speculator.

The 15-hour days required to manage the Arkansas portfolio have begun winding down, and Ferguson would like to buy other portfolios of nonperforming loans that he could manage.

"We're looking at buying stuff," he said. "Seven million [dollars], I can make three phone calls; $70 million, I don't know."

An avenue he'd like to explore is helping collect financial judgments against borrowers, a challenge akin to his nonperforming loan work.

"I want to do that, and I think I'll have a lot of fun with that," Ferguson said.

First Deal and More

Ferguson's first troubled-asset purchase totaled $350,000 for 43 lots in phase one of Bentonville's Cornerstone Ridge neighborhood, where he paid 18 cents on the dollar in a direct purchase from the FDIC.

He bid on the property, part of a subdivision developed by Tom Terminella, in August 2008 and closed on the purchase a month later. Terminella couldn't be reached for comment.

"People thought I had lost my mind," Ferguson said. "I've more than doubled my money on it, and that got me started."

He has owned as many as 70 residential lots, a number reduced by sales to 29, and invested in about 15 foreclosure sales of homes.

Ferguson threw himself into the Cornerstone Ridge project, cleaning up debris and mowing grass on undeveloped lots. He also funded the neglected property owners' association account to make it whole and get routine maintenance of the common areas back on track.

As Ferguson waded into the project, he also discovered the neighborhood's 17-acre park had been deeded to the city, instead of just the detention pond.

"Everybody was moving way too fast," Ferguson said of the mistaken transfer he had corrected.

He's in the process of cleaning up the one remaining eyesore in the neighborhood, where he intends to finish construction of a house. Ferguson is trading two vacant lots for a partially developed one, where construction has progressed no further than the concrete slab foundation poured in 2006.

On paper, his two lots are more valuable. But he's willing to take a short-term loss to dress up the long-term value of the neighborhood.

"Banks won't do that," Ferguson said. "They won't take on other problems. I have a different attitude about this. People are going to low-ball you already. Why make it worse?

"I never want to be a distressed seller. I want to buy distressed property and sell quality."

Ferguson wonders when lenders will begin realizing the book value of assets recovered from borrowers is inflated relative to market conditions. Hoping the adjusted value of a property will double to recover a 50 percent loss can be a futile waiting game, he said.

"How much you have in it is irrelevant," he said. "The bigger question is how much can you get out of it? Banks need to come to grips with that and be dispassionate about it."

Ferguson recalls his own high-stress, gut-check epiphany trying to hold an indefensible position in the face of overwhelming market forces.

It was December 2001, and he had taken a heavy position speculating on interest rates linked with an economy not in recovery. However, the market behaved as if a recovery were under way and wouldn't budge, turning his savvy play into a losing proposition.

"When you're highly leveraged, the market can stay irrational longer than you can stay solvent," Ferguson said. "I tried to ride it out, but it only got worse. I finally accepted my loss, and it was the best thing I ever did.

"I took some time off, came back and had the best year I ever had. I made $2 million, and it didn't matter how stupid I had been losing $600,000."

His initial investment basis later proved to be sound, which fueled his financial recovery in 2002 after he renewed his position and caught the delayed market swing.

Ferguson considered himself an above-average trader and speculator during his hedge fund days but is content with his current situation.

"I'd rather work here and make half the money," he said. "This is paradise as far as I'm concerned."

J. Brian Ferguson's Life Before Arkansas

Grew up in Greenwood, Miss.

1983: Graduated from the U.S. Military Academy, West Point, N.Y. Served five years in the Army and mustered out as an Airborne Ranger-trained captain.

1988: Joined Money Management Group Inc. of San Francisco as a trading assistant.

1989: Moved to New York to work for Tudor Investment Corp., where he was trained by Paul Tudor Jones, legendary trader and billionaire hedge fund manager. Eventually, oversaw the firm's fixed-income operations.

1993: Joined Bankers Trust Corp., transferred to London and became managing director. Oversaw the firm's European Fixed Income Arbitrage business, including European mortgage trading.

1999: Joined Soros Fund Management as portfolio manager and London board member, after Bankers Trust was acquired by Deutsche Bank.

2001: Joined Mizuho Corporate Bank as portfolio manager and head of European fixed-income trading group.