Hurricane Sandy Offers Banks Risk and Opportunities (Update 1)

Updated with comments from North Jersey Community Bank CEO Frank Sorrentino.

NEW YORK (TheStreet) -- Smart lenders can turn the aftermath of Hurricane Sandy into an opportunity to cement stronger customer relationships.

For starters, many banks in the affected areas have been giving their customers a break by waiving fees. For example, Hudson City Savings Bank -- the main subsidiary of Hudson City Bancorp (HCBK) of Paramus, N.J. -- waived all overdraft fees, ATM fees and late payment fees for November payments, until Nov. 6.

Valley National Bank of Wayne, N.J. (held by Valley National Bancorp (VLY)), on Monday offered a new Valley Family Assistance Loan product to its "current loan customers who have an immediate need for cash to cover emergency needs."

Of course, banks are facing a difficult time ahead, as the commercial real estate and residential mortgage loan borrowers that had property damaged by the hurricane go through the process of making insurance claims, waiting for adjusters to settle claims, and then line up contractors to make repairs.

The hurricane "is a big deal for the banks," according to Kevin Petrasic -- a partner in the Global Banking and Payments Systems practice of Paul Hastings, based in the firm's Washington office -- who says that "this is when long-lasting customer relationships can be solidified or destroyed. The challenge for lenders is figuring out how to handle the volume of issues expected as customers try to get their lives together."

According to Petrasic, in addition to handling the volume of hurricane-related problems, lenders also need to figure out how to respond thoughtfully and "identify tailored solutions to particular problems of particular borrowers in unique circumstances. For example, a borrower who has a first-lien mortgage with one bank may have and a home equity loan with a different lender. These are the issues for which institution may have to coordinate with each other to address problems."

North Jersey Community Bank CEO Frank Sorrentino says that his bank quickly "reached out to loan clients in especially hard-hit areas to see if they were damaged or needed anything from us," including assistance with cash flow difficulties resulting from the hurricane. "A lot of people depend on the electronic systems for their banking and a lot of those systems were down. Having a bank like ours which was up and running, where you could communicate with a relationship officer to respond to that and make funds available enabled us to provide a high level of service for our clients," he said.

North Jersey Community Bank also actively monitored customers' accounts during the days following the hurricane. "This storm occurred very close to the first of the months," he said, "so if clients didn't receive the funds they expected but had money going out, we would help them with funds to cover overdrafts."

In its third-quarter 10-Q filing on Thursday, Capital One Financial (COF) said that "we have significant consumer and commercial loan exposure in Connecticut, New Jersey and New York, the states with the most severe FEMA disaster declarations," including $19.8 billion in consumer loans and $16.6 billion in commercial loans, representing nearly 18% of the company's total portfolio loans as of Sept. 30. The company also said that "some of these exposures are not in the counties that received the most damage."

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