Does Philadelphia need a hometown bank?
WSFS Financial Corp. of Wilmington is "filling a void" in the metro Philadelphia region by paying $1.5 billion to buy Philly's biggest remaining bank, Beneficial Bancorp, said senior executive Rodger Levenson, a Broomall native, Temple grad, and veteran of a few of the former Philadelphia banks that vanished in the mergers that cost Center City tens of thousands of jobs.
The deal will form the biggest bank based in the region since Commerce Bancorp was sold to Canada's TD Bank in 2007. Investors were "not very enthusiastic about this combination," noted Joe Gladue, bank analyst at Merion Capital Partners, Wayne, after WSFS shares dropped 8 percent on the news. He doesn't think the price is "out of line." But, he warned that it will be expensive for WSFS to modernize systems, consolidate branches, and boost sales in order to make the deal profitable.
For consumers, it can be tough to tell one bank from another, each with automated mortgage, deposit, investment, credit card, and mobile banking products. WSFS plans to spend $32 million upgrading Beneficial systems, and its own, to "level the playing field" with its larger rivals, says chief executive Mark Turner.
For Philadelphia businesses of a certain size, the deal is welcomed news. Turner says the merger will enable WSFS to lend to Philadelphia businesses with up to half a billion dollars in yearly sales — twice as large as before. "It does makes a difference," says Carl Dranoff, the Center City-based apartment and retail developer who counts Beneficial among his lenders.
"The larger institution can make larger loans, and therefore deal with larger projects and bigger developers," Dranoff added. Plus, he says, it's "quite positive to have a hometown CEO. The customers have more direct access to the top people and decision-makers. Most of our local banks over time have been absorbed by out-of-town firms, so this is a welcomed exception."
WSFS is making its move at a time when Wells Fargo, the California-based company with the biggest branch network in the Philadelphia region, and other multistate lenders have been shifting commercial lenders out of the region and into busier markets.
"There's definitely a niche to be exploited" by a local bank, said Robert Fahey, an executive vice president at the Philadelphia branch of CBRE Capital Markets, an investment arm of the nation's largest commercial real estate brokerage.
"I feel kind of sorry about Beneficial; it has deep roots in Philadelphia. But I'm thrilled Rodger is going to be the CEO, and they'll have a more substantial presence based in this area," said Charles Connelly, who was Levenson's boss at CoreStates Bank, the city's largest before it was bought by the former First Union Corp. 20 years ago. Connelly was later an investor in Penn Liberty Bank, a small-business lender in Philadelphia's wealthy western suburbs, which WSFS bought two years ago.
Even with Beneficial, WSFS is far from reaching the scale of Philadelphia's old national banks. CoreStates employed 17,000 in the Philadelphia region alone. More than 10,000 of those jobs vanished after the bank was sold, along with CoreStates' leading role as a donor to charitable causes and a force in public affairs.
With about one-quarter of CoreStates' old banking assets (after inflation), WSFS will employ about one-tenth as many people as CoreStates used to, once it's done digesting Beneficial — a reflection of the rapid automation pushing WSFS to expand.
The bank will control about 5 percent of the region's branch deposits, compared with well over half that are split among five out-of-town banks — Wells Fargo, TD, PNC, Citizens, and Bank of America — with big branch networks and larger regional market shares.
Banks the size of WSFS plus Beneficial can't fund the biggest deals; national companies need national lenders, said Mitchell Morgan, who heads Montgomery County-based Morgan Properties, one of the biggest apartment-complex investors in the Northeast. His firm borrowed $2 billion last year, more than the enlarged WSFS can handle. "Local banks mater," but not for national enterprises, he said.
With business loans, while "80 percent" of the loan decision involves cash flow, valuations, and other data-crunching, the rest still "revolves around assessing the quality of the [borrowers], their integrity, their ability to manage that company," says Connolly. "Part of your job is to be out with the customers."
Market familiarity can be too much of a good thing. It didn't save WSFS's larger rival, Wilmington Trust Corp. Federal regulators forced its sale to M&T Corp. in 2010 to avoid financial collapse. Last month, four former executives were convicted by a federal jury of lying to investors and regulators about hundreds of millions of dollars of bad real estate loans to the bank's developer customers. The bank had grown too cozy with its largest customers. Investors lost more than $1 billion in the bank's decline; 700 staff lost their jobs.
WSFS, which barely survived the late 1980s savings-and-loan crisis, developed a tougher credit culture. During and after the 2008 financial crisis, the company had a reputation for pressuring borrowers to keep to their agreements under difficult circumstances.