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“A bank is a leveraged company. It’s a leveraged, balance sheet business,
and the actual capital that you have matters.”
Irene Oh / East West Bancorp
very reasonable,” he says. McGratty cites East
Group, the holding company for Silicon Valley
West’s track record for risk-adjusted growth,
Bank, but sold his stake a couple of years ago,
along with its capital levels. “We still think [the
citing the risk management failures that brought
stock is] pretty inexpensive.”
about the bank run that resulted in SVB’s demise.
East West’s capital buffer should position it to
“I had no idea they were gonna fail, but they start-
grow in an adverse environment, even if it doesn’t
ed to get too leveraged, too much liquidity [and
buy another bank. “Second to Wells Fargo [&
were] putting bonds to work at really low prices.
Co.], we are now the largest bank [based] in Cal-
And they didn’t have enough holding company
ifornia,” says Oh. “There are going to be oppor-
capital.” He also earlier exited his position in Sig-
tunities to grow organically in California.” East
nature Bank, another March failure. Wiley says he
West differentiates itself by serving Asian-Amer-
encouraged that bank to raise more capital, telling
ican customers and businesses. Unlike Santa
them, “‘You guys are growing; you’re doing terrific.
Clara, California-based SVB — which failed
But you need more capital in case something goes
when its highly concentrated client base pulled
wrong, or these crypto deposits leave.’”
billions in deposits out of the bank — East West’s
Fitzgibbon says investors now prefer what he
customers represent a broad base of deposit rela-
calls “bunker banks,” featuring a strong capital
tionships, as well as commercial real estate, sin-
position, liquidity and credit quality. “They’re
gle family, and commercial and industrial (C&I)
investing in companies that can withstand a po-
loans. Overall, East West ranked first among
tentially large storm that’s bearing down on the
banks over $50 billion and rounded out the top
industry,” he says. “[Investors] care about sur-
25 in the RankingBanking study.
vivability.”
For Dory Wiley, CEO of Commerce Street Hold-
In addition to capital, Wiley favors banks with
ings, capital is king. “I like 8% to 10% capital,”
a strong core deposit franchise. He also likes
he says. “If you’re a conservative bank, play safe.
growing banks with solid credit underwriting and
Safe means capital.” And it means a competitive
an appropriate level of loan loss reserves — that
opportunity in a downturn. A bank with lower
number will depend on the bank, but should be at
capital levels can’t be opportunistic — and could
least “north of 1%,” he says. A track record for
struggle if problems come its way.
thriving through adverse economic cycles doesn’t
Wiley personally invested in SVB Financial
hurt. He’s also looking at metrics that describe