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Signature Bank CEO Joseph DePaolo: Banking on Businesses

Seven years ago, 65 HSBC executives simultaneously jumped ship to embark on an unlikely adventure: launching a brand new bank …

Seven years ago, 65 HSBC executives simultaneously jumped ship to embark on an unlikely adventure: launching a brand new bank at a time when most financial institutions were consolidating. HSBC would later point to Joseph DePaolo, the former Republic National Bank of New York managing director who became CEO of New York City-based Signature Bank, as the “mastermind VbCrLf behind that launch- and the resulting HSBC exodus.

It’s a charge DePaolo, 49, doesn’t contest. “We started putting together a business plan the day HSBC announced they were taking over Republic,VbCrLf he recounts. “We didn’t even give them a chance.VbCrLf

To DePaolo, the very concept driving the rash of mergers sweeping the banking sector-that bigger translated to better-was anathema. At a time when globalization was being heralded as the great growth opportunity du jour, his view was very different. Rather than global reach and international brand recognition, he felt that Republic’s prized private banking clients wanted a more intimate relationship with their bank. “HSBC was too large, too global and wouldn’t have allowed us to function the way we needed to handle Republic’s New York clientele,VbCrLf he says.

As it happened, HSBC didn’t get a chance. DePaolo and four other former Republic executives, including vice chairman John Tamberlane, departed shortly after the merger to assemble what would become Signature Bank. Raising the funds to launch-Bank Hapoalim of Israel provided startup and operating capital-and luring employees took the better part of a year. Then Signature staged a coup by orchestrating that now-legendary simultaneous resignation. The 65 former Republic Bank employees, representing 12 client teams, left HSBC on April 27 of 2001 and picked up their Signature business cards that same evening.

“We were constantly talking to those team members, and there were a lot of big bets going on that not everyone would resign, VbCrLf says DePaolo. “But we had a cocktail reception that night and every single one came. As they left we handed them their business cards. We opened the bank on May 1. VbCrLf

The hope was that each team would bring with it a roster of clients in Signature’s primary target market: owners and managers of privately owned businesses. And Signature (trading on NASDAQ at $29.80 at press time) continues to follow that growth strategy of acquiring people rather than banks. “We tell people, You bring in your book of business, you develop it, and, if you’re good, you will earn more money here than you would anywhere else because you’ll get a piece of the action, ‘VbCrLf says DePaolo, who has made it his practice to snap up top talent at recently purchased banks. “That’s our modus operandi. These are people who are very loyal to their institution and don’t want to leave, but then change is thrust upon them. They need to find a place that’s like [their bank] used to be. VbCrLf

By all measures, the strategy appears sound. DePaolo recently brought eight former North Fork Bank teams into the fold, after that bank was acquired by Capital One. Today, Signature has 21 offices in the New York metropolitan area and $6.5 billion in assets (as of Q2, ended June 30, 2008), ranking it among the top 3 percent of commercial  banks in the U.S. based on assets, according to the FDIC Market Share Report.

In September, while other banks were looking for funds to stave off credit trouble, Signature went trolling for capital to fuel growth. Despite the financial downturn, the move proved fortuitous, raising a hefty $148 million in its fourth public offering (the first was in March of 2004) and jumping its debt to capital ratio to 10 percent- a heady figure in banking circles today. “It wasn’t necessarily the best time to start raising money, but since we were doing it for growth rather than to pay for past sins we thought it would be viewed in a favorable light, VbCrLf recounts DePaolo. “And it was. In fact, we had planned to raise $100 million, but reception was so good that we upped the offering a bit while we were on the road. VbCrLf

But that healthy balance sheet didn’t save Signature from having to reassure jittery clients as financial upheavals continued into October. The owner of a hotel chain, for example, may not understand the fundamentals of finance well enough to feel confident that leaving his $50 million in deposits at Signature is wise, notes DePaolo. “Every day I call clients and talk to them about our capital levels and why what happened at Bear Sterns or Wachovia isn’t happening here, VbCrLf he says. “It’s not a walk in the park, but there is an upside. When this is all over we will be that much closer to our clients because they will remember the time we spent with them during these issues. VbCrLf

At press time, the FDIC announced a decision to temporarily provide full coverage of non-interest bearing deposit transaction accounts, such as the payroll accounts used by businesses, taking some of the pressure off of banks like Signature. But even before that move, DePaolo was determined to maintain Signature’s growth track with plans to open a 22nd office-its first in Staten Island, New York-and to hit $8.5 billion in assets within the next 18 to 24 months.

“We’ve faced difficult times- including 9/11 and the past 18 months-ever since we started the bank, VbCrLf he points out. “And we’ve been able to persevere against competitors who are trillion dollar institutions. We are literally a rounding error to some of our competition. So it’s exciting for us that we were able to find this market, privately owned businesses, and a wonderful challenge every day to continue to take it on. VbCrLf

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.