worked with some great bankers in the 33 years I've covered the
industry as an analyst and investor (the late John Medlin of Wachovia,
and Carl Reichardt and Dick Kovacevich of Wells Fargo come to mind).
I've also worked with some great bank stock investors (Legg Mason's Bill
Miller, for instance, along with Shelby Davis of Davis Funds and George
Vanderheiden of Fidelity). But there are only two individuals I can
think of who stand out as being both great bank investors and
great operators: Texas's Jerry Ford and Harrison Steans of Chicago. Both
men have outstanding long-term track records of buying mediocre banks
at attractive prices, dramatically improving operating performance, and
then selling at the right time to generate huge profits. If I ran a
banker/bank-investor Hall of Fame I'd reserve a special wing for Jerry
Ford and Harrison Steans.
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mention this because lately, sure enough, both men have done it again.
Last December, Ford closed on his sale of Pacific Capital to UnionBanCal
for $1.5 billion. The deal came less than three years after the group
he led purchased Pacific Capital for $500 million. It was a typically
impressive Jerry Ford transaction. Then this week, Taylor Capital (where Harrison Steans is the most influential director) announced it is selling itself to MB Financial
for $22 per share in cash and stock. This comes less than five years
after Steans led a group that recapitalized Taylor at $10 per share.
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I say, this is not the first time Harrison Steans has turned around a
bank then sold it at a big profit. He was Chairman of LaSalle Bank when
it was sold to ABN Amro in 1979. After that, he cobbled together a
group of Chicago lenders with aggregate assets of $40 million, built
that up to $1.8 billion, then in 1987 sold the bank to NBD for 4 times
tangible book, or $250 million. (Steans is also the controlling investor
in a very successful bank, USAmeriBank, in Florida.) He's great banker
in the John Medlin mold: soundness, profitability, and growth--in that
Taylor deal is a vintage example of Steans' "fix and grow" strategy.
The "fix" part was aimed at repairing Taylor's credit quality (mainly
commercial real estate loans and loans to homebuilders), and was
essentially completed last year. The "grow" part involved building two
national businesses, asset-based lending and mortgage banking. But one
other piece of Taylor's growth plan was slow to take off: its
traditional banking business. Part of Steans' genius is his ability to
recognize when the "fix" has gone as far as it is going to go, and
realize it's time to sell. For the Taylor franchise, Steans understood
that that time had arrived. Staying independent would have required
Taylor to develop a retail banking business to fund its growth. But
Taylor has just nine branches in a market that's already way
over-branched, so opening profitable new ones would have been tough. It
might have developed an internet deposit strategy, but management knew
it had little expertise there. Or it could have paid a premium to buy
another bank. That wouldn't have necessarily been good for shareholders,
and would have been fraught with operational risk.
Taylor could sell. MB Financial has excess deposits and a strong
currency (its stock trades at 16 times estimated 2014 earnings) and, for
regulatory reasons, wants to move significantly above $10 billion in
assets (now around $9.6 billion). Acquiring Taylor is an ideal solution.
Steans made the right call and negotiated a deal that works out to 1.8
time tangible book value. This is a good deal for the shareholders of
Beyond his accomplishments in banking, Steans is also notable for his philanthropic work, which he carries out through his Steans Family Foundation.
If you visit his office in Chicago, you'll see that a glass conference
room splits the space in half. "On one side is where we make the money,"
he says, "and on the other side we give it away." Key program areas
include early childhood development and school-based education in
inner-city areas of Chicago.
Jerry Ford and Harrison Steans have been phenomenally successful at
investing in banks at good values, improving them, and selling them at
significant profits. Ironically, despite their incredible success and
the wealth has followed, both are modest about their accomplishments and
grateful to all those who have helped them. They are gold standards
for bankers and bank investors!