For the past several years, Ken Vecchione has compared the growth of his company, Western Alliance Bank, on a quarterly basis to three of its main competitors: First Republic, Signature Bank and Silicon Valley Bank. I printed out a spreadsheet to do.
And each time Mr. Vecchione got angry. The analysis showed that Western Alliance’s loans and deposits were growing like everyone else, and that its stock price had not risen as much as its total assets had tripled in five years.
“Honestly, we were a little envious of them,” said Vecchione, who has been the chief executive of Phoenix Bank since 2018.
All three of these competitors have now gone bankrupt due to deposit runs during the biggest banking crisis in 15 years. Western Alliance and other banks, which until just a few months ago were not well known, are struggling to prove they are different from their failed rivals. “I never expected this to happen,” Vecchione admitted in an interview.
Three months after the failure of Silicon Valley Bank, the banking industry is engaged in a collective self-investigation. Industry turmoil shook borrower confidence, sparked new scrutiny and hurt the industry as a whole, but the panic hurt the nation’s largest lender. Above all, JPMorgan Chase, the nation’s largest bank, took over the crumbling First Republic and grew even bigger by scooping tens of billions of dollars from the nervous savers of smaller banks.
About 4,100 other banks are left behind, ranging from regional institutions in large cities like Western Alliance to small rural community banks operating out of a single branch. These financiers have long touted themselves as cornerstones of the U.S. economy, lending and financing small businesses that would otherwise be ignored. They hold about two-thirds of all local deposits.
These banks have received relatively lax treatment from regulators, requiring them to disclose less financial information and set aside less cash to cushion a surge in deposits compared to larger banks.
But this year’s turmoil has raised new questions about the wisdom of that approach. Despite the failure of only three midsize banks, fears of financial contagion spread throughout the banking system. At the first signs of trouble, depositors withdrew money from local banks, but many never got it back.
Government officials seem undecided about what they want banks like Western Alliance to do. Since the 2008 financial crisis, policymakers have put the brakes on “too big to fail” firms, preferring that risks be spread more evenly among lenders. Now, however, there is skepticism about small banks’ no-holds-barred growth ambitions, and there are indications that they are open to mergers among lenders.
Treasury Secretary Janet L. Yellen welcomed more financial firms to merge last month in a closed-door meeting with bank leaders, including JPMorgan’s Jamie Dimon, according to people who attended the briefing. said to do. easier for regulators to oversee.
Mr. Vecchione said he had never spoken to Ms. Yellen or her staff until this year, but now receives confirmation calls from Deputy Treasury Secretary Wally Adiemo. Vecchione said he is not against more regulation, but it would increase costs for banks and ultimately give new advantages to big competitors who can afford the costs.
He said he recently asked regulators, “Do they want us here?”
There are models that make the banking sector more centralized. Six banks dominate 90% of the market in Canada, while his six largest banks in the United States account for about 50%. Canadian banks have little incentive to take big risks, but with relatively little competition, borrowers could face higher interest rates, experts say.
“We don’t want to go to six banks because that would really stifle lending,” said Ben Gerlinger, a regional bank analyst at Hobde Group.
Bruce Van Thorne, CEO of Citizens Bank, said he’s done his career, partly to discourage depositors who are most likely to close their accounts at the first signs of a crisis. For the first time, it said it was looking to downsize lenders. He hopes this will convince investors that the nation’s 14th-largest bank is stable. (One indicator of US bank sprawl: Citizens, based in Providence, Rhode Island, is a separate company from North Carolina banker First Citizens, which took over the former branch of Silicon Valley Bank. ) Hundreds of Other Lenders It has “citizen” in its name. )
“If you don’t show that your deposits are declining, you’ll be on the list of ‘problem banks,'” Mr Van Thorn said. “Will the cure be worse than the disease?”
The Western Alliance has grown accustomed to shrinking quickly. The bank’s shares are down about 50% from their highs in February. Other regional financial institutions, such as PacWest, which has aggressively scaled back by selling package loans, have fallen in that range or more.
“We don’t like being put in the same sentence as Pacwest,” said Vecchione.
Founded in 1994, the Western Alliance was led for most of its history by billionaire Robert Thurber, who was accused of racial slurs, employee abuse and other violations by the NBA. was forced to sell the Phoenix Suns last year. Thurber stepped down as chairman of the Western Alliance amid an ongoing league investigation.
Queens native Vecchione looks like he could play a bank clerk in a movie. He wears a Hermès tie and collects luxury watches (Rolex not included, but too common, he says). His salary for the past three years, including his stock, was worth about $22 million.
Until recently, the bank was in furious expansion mode. In 2015, Western Alliance acquired San Francisco financier Bridgebank, which was competing with Silicon Valley Bank for business from venture capital firms. Like Silicon Valley Bank, Bridge Bank advertised that it could fund start-ups and other businesses that typically had more than $250,000 in bank accounts, but the federal government only guarantees deposits up to that amount. , given that such accounts are unstable, this is a risky proposition. .
Western Alliance, a so-called commercial financier, primarily lends to companies such as timeshare companies, property developers and hoteliers. It has branches throughout the West under brands such as Bank of Nevada, Torrey Pine Bank, and the Arizona Banking Alliance.
At the end of the year, Western Alliance had $68 billion in assets, making it the 40th largest financial institution in the country. The bank’s board of directors has approved a plan to grow the business to as much as $100 billion by expanding beyond the West, including a new Manhattan office on Madison Avenue with marble-lined walls. was included.
Dale Gibbons, chief financial officer of Western Alliance, said the failure of Silicon Valley Bank hit like an “explosion.” For hours after the bank closed, Gibbons, Vecchione and their team gawked as their bank accounts dwindled. Longtime customers have requested withdrawals without even calling to check in.
Around the office, Vecchione witnessed employees splitting their attention on dual monitor screens. One was their regular job. On the other side was a chart showing the bank’s Crater share price.
The bleeding stopped after the bank offered some of its largest depositors a tour of its operations in exchange for signing non-disclosure agreements. Some accepted the offer.
“I feel sorry for the depositors, they didn’t sign up to be bank equity analysts,” Mr. Gibbons said.
At the end of the first quarter, Western Alliance lost about 12 percent of its deposits, or $6 billion, but the money is slowly coming back. But that business model was now outdated. What bank executives were proud of—the so-called high-touch approach of getting to know their customers and approaching loans on an individual basis—has maintained a comfortable relationship with wealthy customers like First Republic and Silicon Valley. evoked unpleasant parallels with banks.
Vecchione expressed some frustration at the attention his bank received. In the midst of the crisis, when reports surfaced that the bank was considering a merger or sale, he was outraged, lest the public think the regional banks were weak. ordered the team to deny .
And he doesn’t even embrace the moniker of a regional bank, preferring instead to describe Western Alliance as a “regionally-based national bank.”
Vecchione said he would not allow his bank to become a “victim”. He continues to direct underwriters to compete fiercely in the lending business, with Western Alliance raising savings account payouts to just over 5% a year, the highest in the nation.
“People like confidence. They’re trying to see if you’re shy,” he said. “We are important. We’re not going anywhere.”