Bancorp Bank's chief executive, Betsy Z. Cohen, and president, Frank M. Mastrangelo, say they bought bankrupt subprime lender American Home Mortgage Holdings' federal savings bank subsidiary, and about $100 million in loans, for around $9 million last week -- just 60% of its book value, vs a few times book value in most bank deals -- in order to expand their own cluster of niche banking businesses, which counts Legg Mason, SEI Corp. and Independence Blue Cross among its clients, and raise cheap deposits without the cost of branches or a lot of Internet marketing campaigns.
Cohen and Mastrangelo ran Jefferson Bank until they sold it 10 years ago and left a year later. "We wanted a new bank. We had a lot of contacts, and no legacy systems. But we saw deposit banking would be changing," Mastrangelo told my colleague Harold Brubaker and me in their offices at 1818 Market St., Philadelphia. (Cohen's family runs a string of public companies across the city, with offices from the Navy Yard to Cira Center.)
Back then, there were many examples of what not to do in Internet banking. "We learned from Wingspanbank.com you can't invest $150 million into a name and get only 50,000 customers. We learned from X.com, the predecessor to PayPal... that identity and funding fraud were big issues. We learned from ING Direct and Emigrant Direct that the cost of putting your shingle out on the Internet was high," because depositors demanded high rates that cancelled teh savings from not running branches.
So they started TheBancorp, which offers "private-label banking" for Blue Cross health-savings accounts; merchant credit and debit-card processing; prepaid card issuing for Western Union and others through a company they bought in South Dakota; deposit and loan accounts for asset managers like SEI and Legg Mason; more deposit accounts for nervous 401-k plan savers; and IRA rollover accounts for "abandoned" savings plans for workers who leave their jobs. Plus, "well-collateralized" loans to Philadelphia-area developers, businesses, individuals, and small-business truck fleets.
Sounds a little like the kind of grab-bag of financial-tech businesses that SEI Corp. and SunGard Data Systems cobbled together in their early incarnations. Cohen prefers a comparison with the information-technology arms of banking giants Citigroup and JPMorgan Chase & Co. Having decided not to build branches or rely on the Internet, Bancorp targets niche tech markets for companies that don't or can't own banks directly, and lets these partners find the customers whose loans and deposits
"People were banking geopgraphically; now they bank demographically," said Mastrangelo.
"We become the regulatory shield, promoting the brand of our partner," said Cohen.
Sounds complicated. "We like complicated.," said Cohen. "It’s a barrier to entry."
Bancorp bought American Home Bank after Wilbur Ross and other non-bank buyers were turned down by the federal Office of Thrift Supervision, New York reporter Teri Buhl wrote last week in this article on Dealbreaker.com. Buhl speculated Cohen might even be buying the bank for Ross.
"I don’t know Wilbur Ross. I certainly wouldn’t sell him anything," Cohen told us.
"There's much easier business than flipping bank charters," added Mastrangelo.
"We wanted the charter so we could use it to (attract) national customers," said Cohen. "It's better than our Delaware charter," whose use in other states could be challenged in court. "That's the purpose for this acquisition. To expand our deposit capacity." It's a lot cheaper, she added, than adding branches on Walnut St.
So, they'll be hiring? "We will add to our business development staff because this is our opportunity. But this is a long lead time business," said Cohen. How many, when? "We’d rather not make esimates. We’re adding on a very incremental basis."