Western Alliance Bancorp. parent of Bridge Bank said that it will make business borrowers work harder to keep their money in the bank.
We need to tie up more deposit commitments to loan documents in the future, so that the penalties are severe if the money is moved. Dale Gibbons told the attendees of Western Alliance's earnings conference that today it is a nuisance. If you want to build a relationship with us and benefit from our experience, you will need to make deposits.
Gibbons stated that Gibbons would say this to any client he sat across from. "We say: We're very happy to help you make your business successful. We want to make your business very, very successful. You must do the same thing for us.
It is a common practice in the industry to require that business borrowers maintain their bank accounts as well. Western Alliance stated that this was a strength during the banking crisis last month, as a third-to-40% of all deposits were tied to loan commitments where Western Alliance was their primary bank. Gibbons stated that these deposits did not leave the bank.
The turmoil in the banking world centered around the failure of Silicon Valley Bank on March 10, has caused some depositors to want to move their deposits to "too large to fail" banks, or to heed advice to spread the risk through spreading their deposits. Western Alliance is not in any of these situations.
Western Alliance (NYSE WAL) will not be the only company to play hardball with business lenders. Bankers will be able to make more decisions as credit tightens.
Gibbons credited Bridge Bank’s position in the market as it competed against Silicon Valley Bank for many years.
Gibbons stated that the original Bridge team focused on the portfolio companies, not venture capital funds when it started the company as a rival to SVB. Gibbons said that the original Bridge team, when they started the company to be a challenger brand to SVB, was to focus on the portfolio companies and not the venture capital funds.
Western Alliance executives have also provided some insight on the outflow of deposits following the failure Silicon Valley Bank. The bank was purchased by North Carolina’s First Citizens Bank from the FDIC. Investors were prompted to sell other banks in the wake of SVB's failure.
Western Alliance's deposits fell by over 11% in the quarter. Its shares, which had traded as high as $86.27 in the previous year, dropped to $7.46 during the crisis. Shares of the bank soared by 24% when it reported earnings on April 19, and stated that deposits had stabilized in April. The bank's stock closed Friday at 40.59, an increase of $1.04.
Ken Vecchione is the president and CEO of Western Alliance. He said that deposits are expected to increase by approximately $2 billion per quarter. Western Alliance has only 14% of deposits and 11% of loans in the technology and innovation sector.
Vecchione stated that despite the fact that 50% of SVB deposits also had lending relationships, only 42% were actually withdrawn. This was less than expected, as 68% of these deposits went to money centre banks.
Western Alliance, amidst the turmoil, said that some aspects of its model, including the business it does with homeowner associations, sailed right through the banking crisis last month.
Western Alliance was able to maintain the names of the banks it had acquired over the years. Examples include San Jose's Bridge Bank or Torrey Pines Bank in San Diego, and Las Vegas' Bank of Nevada. During the crisis, only 3% to 5 % of deposits left regional bank brands.
Vecchione stated that 'our regional divisions, strong local brands, and small, middle-sized metro business relations acted as core sources of strength, and we saw only modest deposits attrition'. "That's like our consumer deposits. These deposits are very sticky, even though we're not a shop for consumers.
Vecchione stated that he learned that more information is helpful in times of crisis. He said the call was 'probably the longest we've ever had', lasting more than 90 minute. Vecchione stated that the regulatory filings became a powerful communication tool in the aftermath of the financial crisis, allowing employees to speak more in depth about the strength of the bank.
Will Bridge Bank be able to fill the shoes of the Silicon Valley Bank, which failed? Nope.
Vecchione noted that other banks are acquiring talent from Silicon Valley Bank. I think that people will migrate to us, and remain with us.
Vecchione stated that 'consistent performance' is important. This includes not only the consistency with which you deal, but also the consistency in the credit-granting and credit review processes.