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Identifying Opportunity

Posted by Wendell Brock on Thu, Jun 18, 2009

Acquiring a bank with an eye on making an impact in underserved customer groups  

Bank investors and organizing groups know that to be successful in today’s environment, a different type of strategy is required. Acquiring a financial institution with an unhealthy balance sheet and anemic profit potential taps more than investors’ wallets; it can tap their creativity too. One challenge lies in developing a business strategy that can win, and keep, new customers.

Untapped potential

Lena Robinson, of the Federal Reserve Bank of San Francisco, identifies four areas of untapped customer potential for the banking industry: the unbanked, underserved, emerging and immigrant markets. Unbanked consumers are those who have no existing banking relationship. Underserved consumers maintain only a checking account. Emerging consumers who use minimal banking products, but could be ready for more sophisticated debt or investment services. And immigrant consumers are generally migrant workers who have historically been unresponsive to traditional bank marketing initiatives. All of these segments represent opportunity for a newly acquired bank to create value. (http://www.frbsf.org/publications/community/investments/0311/article1.html)

Rewriting the rules

The FDIC’s survey on banks’ efforts to serve unbanked and underbanked consumers, published in February, indicates that addressing these segments efficiently has long been a problem for the banking industry. (http://www.fdic.gov/news/news/press/2009/pr09015.html) Unbanked consumers are hard to locate and not generally interested in traditional banking products and services. Underserved, emerging and immigrant consumers may be more open to the idea of banking, but they have often have little money and minimal interest in borrowing. Those two characteristics are problematic for the traditional banking business model, which emphasizes deposits and lending.

Because these untapped segments aren’t well addressed by traditional banking operations, efforts to court them must take a different approach. This approach should:  

•    Clearly identify the wants, needs and aspirations of customer being targeted
•    Involve the creation of specialized products and services that match those customer needs, and distribution channels to match those customers’ lifestyles
•    Incorporate innovative outreach programs to establish lines of communication with those target customers
•    Find a way to develop trust among consumers who may be leery of financial institutions in general
•    Consider the development of new ways to measure creditworthiness; consumers in untapped segments may not “pass” traditional credit tests
•    Address the profit challenge associated with serving customers who aren’t likely to produce large deposits or request large borrowing facilities

In the introduction to Untapped: Creating value in underserved markets, (http://ca.csrwire.com/pdf/Untapped-excerpt.pdf) authors John Weiser, Michele Kahane, Steve Rochlin and Jessica Landis recommend businesses focus on creating win/win situations—where value is generated for the community and for the business. They also argue that it’s important for businesses to create strong partnerships with other organizations that can bring new insights and knowledge to the outreach effort.

As the banking industry continues to evolve through this period of change, new management teams and investors have the opportunity to create a new kind of value. To date, the banking industry has struggle to realize the potential in these segments—but if there ever was a time for change, it is now.  

Next week, we’ll discuss specific geographies where these underserved groups are likely to exist, as well as how you can use that information to target your bank acquisition search.

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Topics: underserved communities, bank acquisition, banking opportunity, bank investors, buying a bank

Bank Deals: FDIC-assisted vs. Unassisted Purchase Transactions

Posted by Wendell Brock on Thu, Jun 11, 2009

While the current economic and regulatory environment poses challenges for start-up banks, it also creates some unique opportunities for bank acquisitions.

A few years ago, comparing the potential of bank start-ups to that of bank acquisitions might have quickly led an investor to believe that de novo was the way to go. But as desperation and uncertainty in the industry rise, seller price expectations have fallen. Combine this trend with regulators’ increased scrutiny of new bank applications, and the scales are tipping in favor of buying a bank, rather than starting a new one.

Selective purchase, short timeline

Investing groups have two ways to go in a bank purchase: participate in an FDIC-assisted transaction or buy a bank without the government’s help. In an FDIC-assisted transaction, the buyer can acquire deposits, branches and, maybe most importantly, customer relationships, without getting stuck with bad assets. This is an advantage, but the buyer must also contend with public opinion related to the former bank’s failure. Once the transaction becomes public, those purchased deposits may shrink as customers head elsewhere.

Assisted transactions also present a very short window of opportunity. The FDIC notifies and collects blind bids from suitors within just a few weeks. Further, due diligence and negotiations occur before any public announcement is made.  

Trends in the FDIC’s “Problem List” indicate that the availability of FDIC-assisted transactions will likely increase this year. As of the end of the first quarter, the problem list included 305 banks and thrifts. That’s up from 252 at the end of the year and 171 in September of 2008.

Taking the bad with the good

Many insured institutions will remain off the problem list, but will seek a change in ownership or additional capital anyway. Opportunistic organization groups that are willing to dig in and evaluate asset quality, stability of deposits, and the competitive landscape, among other things, could turn up some workable deals. Unlike the assisted transaction, the unassisted deal rarely presents the chance to buy assets selectively. But, if the publicity is properly managed, buyers can minimize customer defections related to the “failed bank” stigma.

Clearly, due diligence in these transactions must be extensive. In the current environment, pricing cannot be justified by multiples; buyers are tasked with looking beyond book value and earnings to evaluate a bank’s incremental earnings power. This is no small task, given the uncertainty about economic conditions, collateral values and the regulatory environment. Since due diligence may actually lead to more questions than answers, buyers must be highly disciplined in valuating their prospective targets and ready to walk away from deals that don’t make sense.

FactSet Mergerstat LLC has reported that at least 285 U.S. financial institutions were sold last year, which is just 54 percent of the number of transactions reported in 2007.

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Topics: Bailout, FDIC, Bank Opportunities, Banking, Bank Risks, Bank Regulators, Bank Regulations

Administration to Consider A One-regulator System for Banking Industry

Posted by Wendell Brock on Thu, Jun 04, 2009

The Wall Street Journal has reported that the Obama administration will recommend an overhaul of the current bank regulatory system to replace several regulators with one super-agency. The plan is said to involve the creation of a systemic regulator and a new consumer protection agency as well.

Currently, banks can be chartered as national banks, state banks, federal savings banks or state savings associations. Each type of charter involves a different set of regulators. For example, national banks are regulated by the Office of the Comptroller of the Currency or OCC. Federal savings banks, however, are regulated by the Office of Thrift Supervision or OTS. State banks can be jointly regulated by the state and either the FDIC or the Federal Reserve Board (FRB). State-chartered thrift holding companies and state savings associations, however, are regulated by the state and OTS. The bank’s organization group selects the type of charter and chartering group within its bank application during the formation process.

Competing agencies create gaps and leniencies

Critics of the current system argue that this regulator mélange lacks comprehensive, systemic oversight and creates regulatory gaps that have been exploited by financial companies.

Also at issue is whether the current system sufficiently motivates regulators to provide careful oversight. New banks represent new funding for regulators; since bank organizers tend to gravitate towards the regulator of least resistance, regulators actually benefit on some level from offering greater leniency.

A systemic regulator would eliminate this competition for leniency. The agency would be tasked with identifying and addressing regulatory gaps in areas such as mortgage banking, hedge funds, credit default swaps and other specialty financial products. As well, the entity would be responsible for recognizing risks and problems within financial companies that are heavily entrenched in the industry—to properly manage or even avoid failures of Lehman’s magnitude.  

ABA warns of ending dual-bank system

A single-agency system would require the unification of oversight functions currently managed by the OCC, OTS, FDIC and FRB. In a letter written to Treasury Secretary Timothy Geithner, ABA President and CEO Edward Yingling expressed the banking industry’s opposition to this concept. According to Yingling, such a system would favor federal banks over state banks, and eventually lead to the end of the dual banking system. The dual banking system, says Yingling, isn’t the enemy; it creates competition and stimulates innovation in financial products and evolution of regulatory systems.

Yingling also argues that the proposed model is based on the U.K.’s Financial Services Authority, which was not able to avert that country’s financial crisis.

The single regulator concept is still just a subject of debate on Capitol Hill. Senator Christopher J. Dodd and Representative Barney Frank have both spoken out against the idea. Press reports indicate that the administration will publicize a proposal later this month.

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Topics: FDIC, regulators, Banking industry, OCC, OTS, FRB, super-agency

Quarterly Banking Profile Shows Profit Rebound amid Continuing Problems with Troubled Loans; DIF Shrinks

Posted by Wendell Brock on Thu, May 28, 2009

In the first quarter of 2009, the banking industry rebounded from a net loss in the prior quarter-an improvement that masked mixed performance. The first quarter cumulative net profit of $7.6 billion, the highpoint of the previous four quarters, was more than 60 percent below 2008's first quarter performance. Further, this year's profitability was largely fueled by strong trading revenues and realized gains on securities at large banks. Nearly one-quarter (21.6 percent) of banks reported a net loss, and a majority of banks reported quarter-over-quarter net income declines.  

A $7.6 billion increase in trading revenues boosted noninterest income, with additional contribution coming from increased servicing fees and gains on loan sales. The industry also benefited from an improved net interest margin (NIM), driven primarily by a lower cost of funds. The average NIM of 3.39 percent was slightly higher on a sequential and quarter-over-quarter basis.

Bad loans still a factor

First quarter charge-offs notched a slight sequential decline, but are still outpacing last year's level by almost 100 percent.

C&I loans accounted for most of the year-over-year increase in charge-offs, but credit cards, real estate construction loans and closed end 1-4 family residential real estate loans were also problematic. Net charge-offs in all major categories were higher than a year ago. The total annualized charge-off rate was 1 basis point below the fourth quarter's record-high level.

Noncurrent loans are still on the rise. The percentage of noncurrent loans and leases to total loans and leases rose 81 basis points during the first quarter to 3.76 percent, with the increase being led by real estate loans. Nearly three-fifths (58 percent) of banks indicated that their noncurrent loan balances increased during the first quarter.

Banks added to their reserves again this quarter, pushing the ratio of reserves to total loans up to the record level of 2.5 percent. This reserve building was outpaced by the rise in noncurrent loans, however, such that the ratio of reserves to noncurrent loans declined to 66.5 percent, a 17-year low.

Balance sheets shift

The industry's equity capital rose substantially, partially driven by reduced dividend payments and TARP infusions. The paring down of loan portfolios and trading accounts led to an industry-wide decline in total assets of $302 billion. As a result, the ratio of total deposits to industry assets rose to 66.1 percent, despite a slight decline in total deposits.

Failure rate high, DIF decreasing  

At quarter-end, there were 8,246 FDIC-insured commercial banks and savings institutions, down from 8,305 at year-end. Twenty-one banks failed in the first quarter. The problem list grew in number from 252 to 305, while the assets managed by problem banks increased 38 percent to $220 billion.

Loss provisions (for actual and anticipated failures) drove a 24.7 percent in the DIF during the quarter, bringing the balance to about $13 billion. The 21 failures during the first quarter are estimated to have cost the DIF $2.2 billion. At quarter-end, the reserve ratio was 0.27 percent, its lowest level in 16 years.

New charters approved during the first quarter of 2009 numbered 13, the lowest level since the first quarter of 1994.  There were 50 bank mergers during the quarter.

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Topics: FDIC, Bank Failure, FDIC Insurance Fund, Quarterly Banking Profile, equity capital, De Novo Banks

Sluggish Bank Regulators: How Much Are They Costing Taxpayers?

Posted by Wendell Brock on Tue, May 19, 2009

Seventy-three start-up banks opened their doors in 2008, according to industry data provider SNL Financial. The number compares unfavorably to what happened in years prior: there were 146 start-ups in 2007, 152 in 2006, and 135 in 2005. The drop-off in bank start-up activity has several contributing factors, but a big one is the ever-lengthening approval cycle. FDIC regulators, ever-conscious about squeezing risk out of the banking system and short on manpower, are taking longer and longer to provide final approvals on new bank applications. It appears that each de novo application now has to be sent to Washington DC for final approval.

Two years ago, a start-up bank could set aside about six months to receive an application approval. However, sometime in early-2008, things began to slow down. Now, a bank organizing group can expect twelve months or more to go by as the FDIC ponders the new bank’s worthiness.

Because time is money

The added caution on the part of regulators is understandable, but it doesn’t come without a cost. A de novo bank typically brings $10 to $25 million of new private capital into the industry. SNL Financial estimates that new banks last year brought in an average of $18 million apiece, or roughly $1.3 billion in total. But a look at the same numbers in prior years indicates that this figure could have been much higher; the 146 start-ups in 2007, for example, delivered a cumulative $2.67 billion in new funds to the industry.

Manpower constraints

Caution, unfortunately, isn’t the only obstacle new bank applications face. Another issue is lack of manpower. De novo applications are processed in the examination side of the FDIC. But many of those examination employees are now being diverted to the resolution department that manages the closing of  banks. A typical bank closure can require the participation of ninety or more FDIC employees—which is a lot of human resources to shuttle away from examining banks and application processing. Last year, the FDIC shut down 25 failed institutions; the count this year has nearly matched that figure.  While the FDIC works hard to help banks survive and keep our financial system healthy, they also look for the least costly solution to the insurance fund as they close an institution.

Private capital, ready and willing

At a time when the feds are dumping money into the financial sector to loosen up lending, the banking system could sorely use the extra capital provided by de novo banks. It was just recently that the Congressional Budget Office (CBO) increased the expected 2009 cost of TARP by more than $150 billion. The estimated total cost is now $356 billion. Meanwhile, the Obama administration is also tinkering with the idea of selling bailout bonds to generate private capital that could fund bailout efforts.

Given that start-up banks bring their own capital—along with clean balance sheets, banking expertise and a willingness to lend—now might be the opportune time to fast-track bank applications. Finding a way to do that might be a practical addition to the existing banking recovery programs.  

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Topics: FDIC, regulators, capital, bank applications

SCAP Results and Changing the Rules on Tier 1 Capital

Posted by Wendell Brock on Tue, May 12, 2009

After rumors and delays, the Fed has released the results of the stress tests that were imposed on the 19 TARP fund recipients. The tests, officially called the Supervisory Capital Assessment Program (SCAP), were intended to check the banks’ capital levels under extreme economic conditions.

The headline news from the Fed’s 38-page report is that 10 of those banks could face capital shortfalls if the assumed future conditions become a reality. Moreover, the cumulative capital shortfall among those 10 banks totaled $75 billion.  

A break from the traditional

The real story, though, is what’s behind that number. Most of the $75 billion shortfall is not attributable to Tier 1 capital deficiencies.

Tier 1 capital is a traditional measure regulators use to assess a financial institution’s health—but the SCAP tests dug deeper to analyze the composition of the banks’ Tier 1 capital. A specific area of focus for the Fed, and the source of the perceived shortfall, was Tier 1 common capital ratio. Although existing regulations don’t require it, the Fed now believes banks should maintain a large component of common equity within Tier 1 capital. As a result, the 10 banks will be asked to raise their common equity—even though their overall Tier 1 capital levels may be within the regulatory standard under the SCAP scenarios.

Regarding the Tier 1 common capital ratio requirement, American Bankers Association President and CEO Edward Yingling said in a press release, “The regulators are, in effect, changing the existing rules and requiring that a higher [common equity] percentage be held within the Tier 1.”

Officially, the common equity shortfall is being called the SCAP buffer, defined as Tier 1 common or contingent common equity.

Fund-raising

In most cases, banks will cover the SCAP buffers by selling common shares or converting existing preferred shares into common. Should those efforts fail, the government has said it will convert its preferred shares in the affected banks from TARP’s Capital Purchase Program to the new Capital Assistance Program (CAP). The CAP program securities are TCE, simply because they are convertible preferred shares.

Bank of America, which is deemed to need $33.9 billion in common equity, has already made its plans known: the bank will hoard earnings and sell assets and common shares to comply with the government’s request. In a CNBC interview, CEO Ken Lewis said, “Our game plan is designed to help get the government out of our bank as quickly as possible.”

Some banks better than others

The Fed report provides estimated losses and SCAP buffer shortfalls for each of the 19 banks. The banks that are projected to have the largest capital shortfalls include Bank of America at $33.9 billion, Wells Fargo & Company at $13.7 billion, GMAC, LLC at $11.5 billion, and Citigroup at $5.5 billion. These four and six more will have to present the Treasury with a capital plan specifying how they will raise the additional capital.

The nine banks that “passed” the stress tests are Goldman, JPMorgan, Bank of New York Mellon, MetLife Inc., American Express, State Street Corp., BB&T, U.S. Bancorp and Capital One Financial.

Click here (http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf) to access the complete SCAP report.

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Topics: stress tests, scap results, tier 1 capital

Senate Approves Increase to the FDIC’s Borrowing Authority

Posted by Wendell Brock on Thu, May 07, 2009

On May 6, the Senate passed S. 896, Helping Families Save Their Homes Act of 2009. The legislation contains various mortgage and loan modification initiatives, as well as a few measures to improve the FDIC’s and NCUA’s capacity to maintain stability in the banking system. The latter include:

•    Sizeable increases to the borrowing authorities of both the FDIC and NCUA

•    An extension of the deadline for restoring the Deposit Insurance Fund (DIF); the   original allowable restoration period of five years will be increased to eight years

•    Revisions to the systemic risk special assessment

•    A four-year extension of the FDIC’s $250,000 deposit insurance limit

•    An amendment that calls for the establishment of a National Credit Union Share Insurance Fund Restoration Plan if the National Credit Union Share Insurance Fund (NCUSIF) is projected to dip below a designated equity ratio

Promises, promises

The Senate bill clearly contains perks for both banks and their depositors. The higher deposit insurance limit is largely a goodwill measure, but it does provide flexibility to high net worth individuals. A hotter topic, though, is the increase to the FDIC’s borrowing authority.

Here’s the background. In February, the FDIC announced a special assessment of 20 basis points to be applied to all domestic deposits as of June 30, 2009 — an action deemed necessary to recapitalize the DIF.

In early-March, the FDIC then indicated that it could reduce that special assessment by as much as 10 basis points, if Congress passed legislation to increase the insurer’s borrowing power to $100 million.

Special assessments cut into banks’ earnings and capital levels, and generally get passed on to bank customers over time. If S. 896 becomes law and the FDIC keeps its promise, banks and their customers will be spared half of that extra expense for the time being.

In a news release, American Bankers Association (ABA) Executive Director Floyd E. Stoner had this to say about the Senate’s passage of the bill:
     
“During this time of economic uncertainty, bankers recognize the importance of maintaining public confidence in the Federal Deposit Insurance Corporation (FDIC).  We also believe that it is important to strike the right balance between maintaining a strong deposit insurance fund without unnecessarily taking money out of the system. S. 896, the Helping Families Save Their Homes Act, helps achieve this delicate balance.”

Incidentally, the Senate’s approved version of the bill did not contain the hotly contested cramdown legislation, which gives bankruptcy judges the right to modify mortgages on primary residences. The cramdown provision was, however, included in the House’s version of the bill, which was passed in March.

The Senate passed the Helping Families Save Their Homes Act of 2009 with a vote of 91-5.
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Topics: FDIC’s, S. 896, mortgage and loan modification, NCUA’s, Senate, American Bankers Association

Bank Stress Tests: Where Do Banks Stand?

Posted by Wendell Brock on Fri, May 01, 2009

Late last week, executives from the 19 largest domestic banks were briefed on the results of TARP-related stress test, officially called the SCAP. The stress tests are intended to predict bank capital levels under deteriorating economic conditions in 2009 and 2010. Equivalent to a government-imposed pop quiz, the tests were incorporated into TARP after the Obama administration was handed the U.S. political reins in January.

The exact details of the test results are supposed to be kept under wraps until an official announcement can be made on May 4. Bloomberg has reported, however, that six banks failed the tests and will be asked by the Fed to raise additional capital. Analysts believe Bank of America, Citigroup and possibly Fifth Third Bancorp of Cincinnati are among the six.

Test assumptions

The stress tests used two scenarios to project the banks’ losses, revenues and reserve needs for 2009 and 2010. The more adverse set of assumptions included:

•    Negative 3.3 percent GDP growth in 2009 and 0.5 percent GDP growth in 2010
•    Unemployment of 8.9 percent this year, rising to 10.3 percent next year
•    Housing price declines of 22 percent this year and 7 percent next year

The value of testing the banks’ capital levels under these particular assumptions has drawn both criticism and praise—some say the assumptions aren’t extreme enough, while others argue that these scenarios will produce results that make banks look worse off than they really are.

Setting aside that argument, the Treasury intends to use the results to determine which institutions need to shore up their capital reserves—to ensure they remain well capitalized in a sharp economic downturn. The exercise is also intended to bolster the public’s confidence that the banking system has the capital to withstand further economic deterioration.   

The consequences of failure

Banks that fail the stress tests will be required by the Fed to raise more capital, preferably from private sources. It has also been suggested that a quick fix might be to convert the government’s preferred stock into common shares—but that scenario raises questions about how the government should appropriately manage its role as an investor.  

There has been no official word on the government’s intention to become a common shareholder in the banking system. Treasury Secretary Timothy Geithner has only said that the Treasury would be able to provide additional convertible preferred shares as “a backstop until private capital becomes available.”

Banks that end up needing additional taxpayer cash will undoubtedly be subject to greater government scrutiny and involvement. It’s a possibility that some industry executives and board members could even suffer the fate of GM Chief Rick Wagoner.
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Topics: stress tests, test results, domestic banks

Survey Says Bankers are Down, But Not Out

Posted by Wendell Brock on Wed, Apr 22, 2009

Bank Director magazine and Grant Thornton LLP have released the results of The Sixteenth Bank Executive Survey. The survey queried bankers in November of 2008 about their take on the banking industry today and in the future. By and large, bankers’ perspectives were gloomier than in prior years—but also reflected a determination to survive within changing economic and industry conditions.

Laying blame

Bank Director asked executives to identify three primary causes behind the current economic crisis. Many bankers cited loose underwriting practices, plus the political mandate to increase homeownership, inadequate oversight in the mortgage industry, and an insufficient understanding of risks associated with certain financial practices.

Bank organizers, who are either purchasing or starting up a bank, can pull a few “lessons learned” from this insight. Clearly, it’s easy for underwriting standards to slip under the pressure of larger industry trends. Therefore, once an institution’s lending strategy is defined, bank executives should be conscientious about adhering to that strategy. Community banks that maintained their underwriting discipline throughout the mortgage boom are now able to operate with a distinct competitive advantage—namely, a relatively clean balance sheet.

There is another lesson in the admission that many bankers didn’t understand the risks associated with their own activities. As Bank Director President TK Kerstetter points out in the survey report, “banks and boards have a lot of work to do in the area of enterprise risk management.”

Confidence lacking

A majority of survey respondents indicated that consumer confidence in the industry has declined. That’s really no surprise, given the speed at which consumers pulled their deposits from IndyMac and WAMU last year. But bankers themselves also admitted their own confidence was lacking. Seventy-six percent of respondents said they were pessimistic about the outlook for banking in 2009. In 2008 and 2007, only 54 percent and 21 percent of respondents were pessimistic about the banking outlook.

Bankers are also preparing for increased loan losses in 2009; 66 percent expected an increase in commercial loan losses, while 54 percent expected an increase in consumer loan losses.

The majority of respondents expect the credit crisis to wane towards the end of 2009 or sometime in 2010.

Acquisition and organic growth expectations

About one-quarter of respondents said their institution would pursue the acquisition of another bank or financial services company in 2009. And 13 percent of queried executives expected to sell or close offices this year. Only 22 percent had plans to expand by opening new branches this year—this figure is substantially lower than what was reported in prior years’ surveys.

A more uniform response resulted when bankers were asked about their strategies for organic growth in 2009:

•    80 percent expect to increase cross-selling initiatives
•    77 percent expect to pursue new customers with existing products and services
•    38 percent expect to build the bank’s online presence

Risk-aware management, capital levels key to survival

At year-end, 47 percent of survey participants expressed interest in the TARP Capital Purchase Program. This figure would likely be lower today, however, since the Obama administration has subsequently mandated executive compensation limits on banks receiving government assistance.

Going forward, bankers will be focused on managing credit risk, interest rate risk and portfolio risk—while working to maintain adequate sources of funding. Deposits will be the primary funding source, but the outlook there is uncertain. Experts are split on whether today’s more conservative consumer will save more or (due to unemployment) save less.

Overall, the survey responses largely present a back-to-basics mentality for the banking industry. As the survey report explains, “Community bankers, in particular, have faith in the guiding principles that have kept their customers and communities strong for decades.”

Source: The Sixteenth Bank Executive Survey, A Grant Thornton LLP study produced in association with Bank Director magazine. http://www.grantthornton.com/staticfiles/GTCom/files/Industries/FSandFI/Bank%20Survey/Grant%20Thornton%2016th%20Bank%20Executive%20Survey.pdf

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Topics: banker's survey, bank executive survey, Bank Director

De Novo Banking Success Story: Herald National Bank President and CEO Explains Why Now Is the Time to Launch a New Bank

Posted by Wendell Brock on Tue, Apr 07, 2009

Herald National Bank President and CEO David Bagatelle recently made an appearance on FOX Business News to discuss the banking environment with correspondent Connell McShane. Herald National opened its doors last November and currently operates three bank branches in the state of New York.

During the interview, Bagatelle asserted that now is a great time to establish a de novo bank—despite the turmoil in the financial markets and in the banking industry. A new bank competitor in this environment automatically has the striking advantage of a clean balance sheet. Unencumbered by toxic assets and rising defaults, the de novo bank can deliver its products and services at a much higher level of efficiency.

Bagatelle indicated that Herald National has realized some success in recruiting top talent from other banks. Many of these relationship managers were frustrated by the inability to serve their customers in this extremely tight lending environment. Herald National represented a great opportunity for those relationship managers to get back to the business of making loans.

Herald National is a balance sheet lender, and is therefore less impacted by the shutdown of the securitization market.

Looking ahead, Bagatelle was cautiously optimistic about programs initiated at the federal level to loosen up the securitization market. He did express concern about the state of the commercial real estate market, which may still be a ways from the bottom.

Click here to see the Bagatelle interview. http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=12189234&src=finance&ch=1316259

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Topics: de novo success, Herald National Bank

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