Spokane7
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October 18, 2009 in Business
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.
Caldwell: West Point trained local bankers to survive 
johnclarke on October 18 at 9:18 a.m.
Stop blaming the regulators for the real problem, which is inadequate management. Both of these intitutions (Sterling and AW) suffer from the same issue, and that is EGO. They gobbled up banks in an effort to increase footprint and assets, with no regard for safety and soundness. The only thing I fault the regulators for - is for not acting sooner.
Bert, you paint a warm picture of these wonderful execs who contribute to the community blah blah blah. Why don’t you do a story on their compensation and retirement packages?
You are correct in one respect, many hard working people are at risk of losing jobs, but you might want to consider the real reason. Hint: it’s not the economy, it’s poor management. Banks are supposed to weather tough times, but they can’t if the execs are only interested in growth at the risk of sound business practices.
zelda on October 18 at 10:56 a.m.
Are we all supposed to run downtown on Monday and make a charitable donation to keep Sterling in business? This is not a remake of “It’s A Wonderful Life,” Spokane isn’t Bedford Falls and Harold Gilkey isn’t Jimmy Stewart.
Regulators didn’t issue the C&D order just to be mean. Sterling management and its BoD overreached and messed up. Some civic leaders are trying mightily to deflect blame for the bank’s unraveling on government, which is the convenient enemy whenever anything goes wrong in Spokane.
Take a look at all the businesses here that have collapsed or left town and tell me it was all because of government interference.
westside on October 18 at 6:29 p.m.
I see Sterling has an offering for CD investments…quick cash for them. How about a 4% CD callable in 3 years??
wcnupe on October 18 at 8:30 p.m.
You editors (along with Management) are pretty optimistic. Sterling’s chances of emerging from this intact are small. They have 60 days to raise $300 million? I’ve never heard of such a thing even when the economy was good and the money was there. Even the other troubled banks are at least getting 120 days to raise their capital levels. I believe the regulators are giving Sterling one last “Hail Mary”, before they shut it down or merge it with some other financial institution (Umpqua Bank) with a loss share deal. It would be much easier for investors to give a healthy bank $300 million to take over Sterling with a government loss guarantee than to risk that kind of money with a bank that hasn’t even released its 3rd qtr. earnings. How would any investor complete due diligence in such a short time frame?
Gene_Colburn on October 19 at 8:34 p.m.
It is sad commentary to say the least. Sterling and AW were both shining examples of what the private banking sector could accomplish. I wish them success in their efforts.
If one does not believe it is an outcome of governmental meddling as Zelda Krup asserts, one only need to look at governments misunderstanding of how business works.
Example: How many pairs of shoes, does it take to manufacture and bring to market to pay a single $70k salary. Which is average for the government salary here in Spokane. Not including Health Care, Retirement Benefits, Sick leave, Dental Care, Maternity Leave… and ordinary facility operation costs. On and on. That burden is on the backs of the private sector, and is obligatory by the needs of government. Business have been taxed into oblivion, with no reprieve.
So you see Zelda Government is a very big part of the problem.
However if memory serves me correctly Sterling received $325 million in tarp funds about six months ago. So there is some heavy liability on Sterling as well.
garfnagn on October 20 at 7:11 a.m.
Blame the Feds. Yeah, all that overregulation of the finance industry keeping banks from using the markets prudently and wisely. The poor dears.
wcnupe on October 20 at 11:10 a.m.
Gene Colburn, the government had nothing to do with Sterling failure as a financial institution. It was Sterling’s management who decided to embark on high risk construction loans, which incidentally, some banks chose to avoid. It was Sterling who has in the past and substantially more recently relied on brokered deposits to puff up their balance sheet and “impress” their shareholders (the largest individual being Sterling’s chairman). And finally, it was Sterling management that fooled their own employees and shareholders by representing as recent as May that the bank was “healthy and well capitalized” while in reality, the institution assets were rapidly deteriorating. The only thing the government did in the past was step out of the way by reducing its oversight and regulatory authority so the “experts” at Sterling and other financial institutions could succeed or fail on their own merits