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.