Bert Caldwell: Bank survival is essential for community
Banking regulators have become the process servers for a sick Washington economy, delivering orders and memorandums commanding financial directors, chief executive officers and other executives to clean up their institutions.
So far this year, they have ordered 14 state banks to cease and desist practices that have woefully undermined their financial foundations. Sterling Savings Bank a week ago became the biggest yet served, joining AmericanWest Bank on the list.
Sterling’s convulsions are particularly sad because of the stakes for Spokane, and the removals of co-founder and Sterling Financial Corp. Chairman Harold Gilkey, and Sterling Bank Chairman Heidi Stanley, who joined the then-2-year-old bank in 1985. With retired co-founder Bill Zuppe and ongoing Executive Vice President Dan Byrne, they built a $12.4 billion institution from next to nothing.
They fought through a 1989 effort to close Sterling by back-stabbing federal regulators. They sued and won, but after almost 18 years and more than $8 million in costs, they got just $1 million back. Justice delayed, justice denied.
Meanwhile, they bought bank after bank, extending Sterling’s footprint into Idaho, Montana, Oregon and California. The ride ended in late 2007, when the Federal Deposit Insurance Corp. did not approve another purchase. By then, the housing downturn that has triggered so much grief was well under way.
Last week, it claimed Gilkey and Stanley, who gave almost as much to the Spokane community as they gave to Sterling. Hopefully, they and Sterling will rebound.
Successors Greg Seibly, Sterling Financial’s new chief executive officer, and Ezra Eckhardt, Sterling Bank president, have much to do in an inhospitable environment.
Raising $300 million in 60 days will be a challenge, as AmericanWest executives know well from their efforts to increase capital. The FDIC has been flexible – with its shrinking insurance fund, it has to be – but potential investors remain tightfisted.
Brad Williamson, head of the Washington Department of Financial Institutions’ Banking Division, said some money is moving, so far to banks like Washington Federal and Columbia Bank that did not get over-extended. The list of troubled Washington banks, he notes, extends way beyond those that have received cease and desist orders.
For Spokane, the best outcome for Sterling and AmericanWest would be private investment that keeps them intact and headquartered in the Inland Northwest. Hundreds of good jobs are at stake, and so is the city’s position as a financial hub encompassing a big chunk of the Western U.S.
Spokane has lost too many corporate headquarters over the years, including those of several banks. Capital preservation is not only the first rule of investing, it’s fundamental to active civic leadership like that of Gilkey and Stanley.
Seibly and Eckhardt say they were drawn to Sterling from other banks because they wanted the chance to make a difference in a bank that makes a difference in the communities it serves. AmericanWest President Pat Rusnak contributes privately, and the bank offers incentives for employee activism.
Spokane always needs more such commitment.
Williamson says a turnaround for Washington banks is probably two or three quarters away. Most of those in trouble today will survive, he says.
If only someone would issue a cease and desist order against the recession.