The Secrets Behind M&T’s Lending Might
Carl Gaines March 28, 2012, 9 a.m.
Fleet of foot, with a concentration on maintaining its focus on community banking and an ownership mentality, M&T Bank’s performance during the financial crisis might give competitors pause. Now, with May 2011’s acquisition of Wilmington Trust, the bank is branching out, providing high-wealth owners of real estate in New York and elsewhere with wealth management and services.
In New York, the bank’s real estate portfolio has grown significantly over the past few years. Executives cited, between 2009 and 2011, an increase of $1.1 billion—up to $5.6 billion.
To get some insight into the bank’s success, The Mortgage Observer met with some of its top executives who gave an unfettered glimpse into the approach that has helped keep the bank a lending powerhouse.
“We really started out here as a multifamily lender but it’s really evolved into a much broader set of commercial real estate products and it’s really across the board,” Gino Martocci, the bank’s regional president for New York City and Long Island, said in his office recently. “In fact our largest concentration is in retail.” He added that after retail comes office, multifamily, “other” and hotel.
“As a subset of ‘other’ we’ll do construction and transition real estate as well—transition defined as it needs leasing or needs to be repositioned somehow.”
Mr. Martocci described the bank’s approach as “pretty conservative,” but was quick to add that it doesn’t shy away from deals that contain “an appropriate level of risk.” Asked what that might include, he pointed back to the transitional real estate deals that it put together several years ago, as the financial crisis gripped many lending institutions.
“We were one of the few lenders out there willing to do an asset that required repositioning during 2010, even 2011,” he said. “It’s changing to some degree now, but we made a good many loans. Or construction loans in 2011—we were one of the more active construction lenders for the right sponsors, for the right people that we’ve done business with for a very long time.”
Recurrent themes in its lending strategy seem to include the familiarity that Mr. Martocci mentioned, as well as the maintenance of a healthy balance sheet. In some ways both have helped it to maintain calm in the midst of chaos. Peter D’Arcy, a group vice president at the bank and a senior group manager in the Commercial Real Estate division, pointed out that top players rely on it for both.
“The last four or five years—we were so clean because the competition was so broken,” Mr. D’Arcy said. “The top names in the marketplace needed flexibility but they also needed a company with a balance sheet and we made so many acquisitions that—we sort of came into our own from a size standpoint, where our capabilities of what we could do for the top tier of New York City as a bank really wasn’t different from a hold standpoint or an underwriting ability than many of the big money center banks.”
The company is smaller, yet less bureaucratic—conservative, yet opportunistic.
“I think the point is that we’ve always been conservative and the consistency is what some of these bigger clients like,” added Jason Lipiec, a group vice president in Commercial and Private Banking at M&T. “In good times we’re not the most aggressive but they know if we give them the deal, the deal’s going to close. And in bad times no one else is out there and because of the safety of our balance sheet and the fact that we didn’t get ahead of ourselves, we were able to be there for them.”
D’Arcy added that the bank’s approach has provided a good mixture for the marketplace. “We’ve expanded the names of who we deal with over the last couple of years in a way that we haven’t since I’ve been here,” he said. Which leads to the concept of institutional memory. Many of the top executives at the bank have been there for decades—Mr. Martocci joined 17 years ago, Mr. D’Arcy the same, and Mr. Lipiec 15 years ago.
“One of the things that really differentiates M&T from a lot of the lenders,” Mr. Martocci said, “is that management has been the same management for 25 years. The turnover allows for a great deal of institutional memory, and institutional memory is critical for protecting your balance sheet and making loans and making sure you’re choosing not only the right kinds of loans but the right people to do business with.”
He estimated that 25 percent of the bank is held by insiders. These include Warren Buffett as well as the chairman and CEO of the bank, Robert Wilmers and Mr. Wilmer’s original investment committee and management. “For an $11 billion or so, $10.5 billion market cap,” Mr. Martocci said, “it is highly unusual—highly unusual, to have such a great deal of insider ownership.”
So how does the bank keep a fresh and talented group of newcomers streaming in? Martocci cited its Executive Associate Program, which he said has been crucial since Mr. Wilmers arrived in 1983.
“Our EA program recruits people from some of the best graduate schools in the country—Wharton, Northwestern, Columbia here in New York and NYU,” he said. “We bring them in to the bank early and we help foster their growth and promote them to senior positions as appropriate and as they prove themselves so this keeps the talent and the blood flowing and the intelligence level and the intellectual capital high.”
He then named a number of high-level executives that had come through the program—including the bank’s current CFO Rene Jones and vice chairman Mike Pinto.
In M&T Bank Corp.’s 2011 Annual Report, Mr. Wilmers highlighted many of that year’s most notable events across the bank and one that stands out, and which will provide additional services to clients, executives said, was the acquisition of Delaware’s Wilmington Trust Corp.
“Wilmington Trust and affiliates brought with them some $50 billion of assets managed for an array of financially substantial individuals and corporations, increasing our year-over-year revenue from trust related services by 171 percent,” Wilmers wrote in the report.
The sale went through in May 2011 for a reported price of $351 million and made M&T Bank the largest bank in Delaware. It added $10.8 billion of assets and $8.9 billion of deposits to its balance sheets.
Notably for New York tri-state, however, was the access it gives M&T’s high net worth clients—venerable, large family owners of commercial real estate—to trust and estate planning. Lawrence Gore, president of Wealth Advisory Services at Wilmington Trust, told The Mortgage Observer that the firm’s two major focus areas—wealth and investment management—dovetail nicely with M&T’s roster of wealthy tri-state clients.
“The environment that we live in today where there’s a lot of volatility,” Gore pointed out, “people are more focused on preservation of capital and they seek out firms like ours. People are seeking out additional information, they’re benchmarking their existing vendors and providers for those types of things and they’re also very concerned about mitigating risks.”
Mr. Gore’s team in New York is 26 strong, Mr. Martocci added, which will allow it to serve those bank clients looking to mitigate the risks that Mr. Gore referenced.
“We have a great many clients who we’ve been banking since the 80s and 90s and I’d say they were worth $15 million or $20 million back in the 90s,” Mr. Martocci said. “Well they’re worth $250 million today. To varying degrees they’ve done their estate planning—some not at all, some a great deal—to varying degrees they’ve got good wealth management. Typically a lot of real estate guys don’t put a lot of money in equities because they feel like they have enough risk, but nevertheless many still do. But everybody’s in need of good estate planning, good succession planning. And Wilmington Trust really brings that to the table in a world class way, in a way frankly that M&T really didn’t have up until this acquisition.”
Another bonus for the bank The Mortgage Observer wanted to hear about was its advisory board in the tri-state area. The mortgage investment committee, as Mr. Martocci calls it, is made up of eight outside directors, as well as some internal directors. They vote on every loan made in the New York area.
“It’s been a tremendous asset,” Mr. Martocci said of the committee. “Because of this board, you think about a piece of real estate differently than most bankers.” Sometimes the news for a potential borrower is good, sometimes it’s not what they might have wanted to hear, but because of the committee’s insights it that news always includes some clues the borrower might use the next time around.
“You’ve sort of given a man a fish in that moment but you’re also teaching a man to fish because the next time that they go back, they’re thinking about that,” said Mr. Martocci. “Or the next time that they have a conversation with a client, they’re thinking in a way that a mortgage committee member might be thinking about a piece of real estate. Now that’s leavened with obviously the bank’s credit culture and the discipline of banking, but the expertise or the understanding of a piece of real estate is greatly enhanced by having this committee asking the questions of the relationship managers and group managers. We’re all there and it’s just a huge benefit to the team, not only as a piece of information and also an informational advantage as it relates to real estate.”