Every quarter for the past several years, Ken Vecchione has published a spreadsheet comparing the growth of the bank he runs, Western Alliance, with three major competitors: First Republic, Signature Bank and Silicon Valley Bank.
And each time, Mr. Vecchione was incensed because analysis would show that Western Alliance’s loans and deposits were growing at the same rate as the others — its net assets tripled in five years — but its share price was not as high.
“I have to admit we were a little envious of him,” said Mr. Vecchione, who has been chief executive of the Phoenix bank since 2018.
Now all three competitors are kaput, having collapsed due to deposits during the biggest banking crisis of a decade and a half. Western Alliance and other banks that were far from household names just a few months ago are fighting to prove they are unlike their beleaguered rivals. “We certainly didn’t see this coming,” Mr. Vecchione admitted in an interview.
Three months after the collapse of Silicon Valley Bank, the banking industry is engaged in a collective introspection. While the industry turmoil hurt them all by shaking borrower confidence and inviting new scrutiny, panic spread among the largest lenders in the United States. JPMorgan Chase, the nation’s largest bank, grew even bigger after taking over the fallen First Republic and hoarding tens of billions of dollars in deposits from nervous savers in smaller banks.
Left in the middle are about 4,100 other banks, ranging from large-city regional institutions like Western Alliance to smaller, rural community banks that operate from a single branch. These lenders have long positioned themselves as the crux of the American economy, providing loans and financing to small businesses that would otherwise be overlooked. They hold about two-thirds of all deposits in rural areas.
These banks receive relatively lax treatment from regulators, requiring them to disclose less about their finances than their larger counterparts and set aside less money as a buffer against deposit runs.
However, this year’s uproar has raised fresh questions about the wisdom of that approach. Although only three medium banks failed, there were fears of a financial contagion spreading through the banking system. At the first signs of trouble, depositors pulled money out of regional banks – and many have not returned.
Government officials can’t decide what they want from banks like Western Alliance. Since the 2008 financial crisis, policy makers have clamped down on “too big to fail” institutions, saying they would prefer to distribute the risk more evenly across lenders. Now, however, there are doubts about the smaller banks’ ambition to grow at all costs, and there are signs of openness to mergers among lenders.
In a private meeting last month with bank chiefs including JPMorgan’s Jamie Dimon, Treasury Secretary Janet L. Yellen said she would welcome more lenders merging with each other, according to a person who attended the briefing, because it would make it easier for regulators to observe.
Mr. Vecchione said he had never spoken to Ms. Yellen or her staff before this year, and now receives check-in calls from Deputy Treasury Secretary Wally Adimoh. Mr. Vecchione said he was not against more regulation, but that it would increase bank costs and, ultimately, provide another advantage over larger competitors who can better bear the expense.
He said he was recently asking regulators, “Do you want us to exist?”
There is a model for a more focused banking sector. In Canada, six banks dominate 90 percent of the market, versus about 50 percent for the six largest banks in the United States. Experts say there is little incentive for banks in Canada to take on risk, although there is also relatively little competition, meaning borrowers could face higher interest rates.
“I don’t think we want to get to the point of six banks, because that would really stop lending,” said Ben Gerlinger, a regional bank analyst with the Hovde Group.
Citizens Bank Chief Executive Officer Bruce Van Saun said for the first time in his career he was trying to shrink his lender by discouraging depositors who were most likely to close their accounts at the first signs of trouble . He hopes this will reassure investors that the country’s 14th largest bank is stable. (An indicator that the United States is littered with banks: Citizens, which is based in Providence, RI, is separate from First Citizen, the North Carolina lender that has opened Silicon Valley Bank’s former branches as well. hundreds of other lenders With “citizen” in their names.)
“You have to show that deposits are shrinking, or else you go on the ‘problem banks’ list,” Mr. Van Saun said. “Is the cure going to be worse than the disease?”
The Western Alliance has become accustomed to shrinking in haste. The bank’s stock is down nearly 50 per cent from its February high. Other regional lenders like PacWest, which has been aggressively shrinking by selling packages of loans, are down in that range or more.
“We hate to be put in the same sentence as PackWest,” Mr. Vecchione said.
Founded in 1994, for most of the Western Alliance’s history it was led by billionaire Robert Sarver, who was forced to sell the Phoenix Suns last year after the NBA found he had used racial slurs and verbal abuse, among other offenses. Misbehaving employees were used. Mr. Sarwar resigned as president of the Western Alliance amid the league’s probe.
Mr. Vecchione, a Queens native, looks like he could play a banker in a movie. He sports Hermès and collects high-end watches (not including Rolexes, which he says is too common). His salary over the past three years was about $22 million, including stock.
Until recently, the bank was in a rampant expansion mode. In 2015, Western Alliance acquired San Francisco lender Bridge Bank, which competed with Silicon Valley Bank for business from venture capital firms. Like Silicon Valley Bank, Bridge Bank advertises its ability to finance start-ups and other businesses that typically hold more than $250,000 in their bank accounts—a risky proposition, given that the federal government can only Insures deposits up to that amount, due to which such accounts fly away.
A so-called commercial lender, Western Alliance lends mostly to businesses such as time-share companies, real-estate developers and hoteliers. It has a collection of branches in the west under such brands as Bank of Nevada, Torrey Pine Bank, and Alliance Bank of Arizona.
By the end of the year, Western Alliance had $68 billion in assets, making it the nation’s 40th largest lender. The bank’s board of directors approved plans to grow to $100 billion by expanding out west, an initiative that included new Manhattan offices on Madison Avenue with marble walls.
The demise of the Silicon Valley bank came as an “explosion,” said Dale Gibbons, chief financial officer of Western Alliance. A few hours after it closed, Mr. Gibbons, Mr. Vecchione and his team watched the deficit in their bank accounts with their mouths. For a long time customers make withdrawal requests without a check-in call.
Around the office, Mr. Vecchione watched his employees divide their attention between dual monitor screens. On one he had a simple job; On the other side were charts showing the cratering stock price of the bank.
The bleeding only stopped after the bank offered some key depositors a look inside its operations in exchange for signing a non-disclosure arrangement. Some considered the proposal.
“I feel for depositors – they didn’t sign up to be bank equity analysts,” Mr Gibbons said.
At the end of the first quarter, Western Alliance had lost about 12 percent, or $6 billion, of deposits, but it is slowly seeing some money coming back. However, its business model had now gone out of style. What bank executives once prided themselves on—getting to know customers and working with them personally on loans, a so-called high-touch approach—brought uncomfortable parallels to First Republic and the Silicon Valley bank, which used their well-deserved clients maintained cordial relations with ,
Mr. Vecchione expressed his dismay at all the attention his bank was receiving. At the height of the crisis, when news reports circulated that the bank was weighing a merger or sale, he reacted angrily, ordering his team to deny the reports (which he says were baseless). , lest the public think that the regional bank was weak .
And he also doesn’t accept the regional bank moniker, instead preferring to describe Western Alliance as a “national bank with a regional footprint.”
Mr Vecchione said he would not allow his bank to become a “victim”. He continues to instruct underwriters to compete hard for lending business, and Western Alliance has raised the amount it pays on savings accounts to just 5 percent a year, the highest in the country.
“People love confidence – they’re looking to see if you’re the wolf,” he said. “We matter. We’re not going anywhere.”