Late last week, during a meeting five blocks from the U.S. Capitol in Washington, something suddenly changed in Commerce Bank’s relationship with bank regulators.
“We got an ultimatum,” a Commerce official recalled. “I think they didn’t think we were taking them seriously.”
Said another: “Regulators said [Commerce] needed to purge itself of improper activity.”
According to three Commerce sources with direct knowledge, federal regulators presented bank executives and board members with two options: Remove founder and chief executive officer Vernon W. Hill or face increased scrutiny, the kind that executives feared would cripple the bank’s growth.
“These government entities never explicitly tell you to do things — they talk in code,” one person involved said. “For the board, it was ‘enough is enough.’ Founder or no founder, they had to make a change. The distraction that hung over the company needed to be eliminated.”
Hill’s and his wife’s long-disclosed, multimillion-dollar side businesses — renting real estate to and furnishing Commerce Bank branches — had become a liability, something regulators at the Office of the Comptroller of the Currency suddenly appeared fired up about.
"It was obvious that, if we didn’t get rid of Vernon, that the regulators were not going to allow Commerce to operate at the continued pace of expansion that had been our success,” said another person involved.
In fact, the comptroller’s office had not approved any new Commerce bank branches in 2007.
Kevin Mukri, a spokesman for the comptroller’s office, disagreed with that assessment. He said that his agency did not “force the board” to remove Hill. Asked if the agency had forced Commerce to stop doing business with businesses controlled by Hill’s family, Mukri said: “I can’t answer that.”
Within a week of that meeting in Washington, an already-developed split on the board grew, and the drumbeat for Hill’s ouster got louder, people involved said. Hill was considered a visionary — aggressive and brilliant — but he also was not shy about taking credit for this, irritating some executives, one of them said, because Commerce had “grown so large that it wasn’t just all about Vernon Hill anymore.”
As the federal agency and board members increased their pressure last week, Hill hired a high-profile legal team: Washington lawyers Andrew L. Sandler, a banking-law expert, and his partner, Robert S. Bennett, who defended, among others, President Bill Clinton in the Paula Jones case. The lawyers declined to comment.
Events climaxed Thursday, according to interviews with five people with direct knowledge of what transpired, who spoke on condition of anonymity.
That morning, a group of Commerce executives and board members returned to the comptroller’s offices in Southwest Washington. Hill was not with them.
During a four-to-five-hour meeting, they met with Timothy W. Long, senior deputy comptroller for midsize/community bank supervision, and hammered out a consent agreement that avoided sanctions against the bank. In the future, board members and their families would be banned from participating in real estate and vendor transactions with the bank. Prior agreements - Hill's family had earned $72 million under such contracts - would be "terminated, revised or reviewed by independent parties."
With a tentative deal struck, the Commerce executives caught an Amtrak train back to Philadelphia about 4 p.m. They arrived around 6, and hurried to the bank's Cherry Hill headquarters, where they convened an emergency board meeting at 7:30 p.m. The meeting was so rushed that the usual amenities - water, snacks - were forgotten. They met in the conference room designed by Hill's wife, Shirley.
The lawyers presented board members with the consent decree from the Office of the Comptroller of the Currency. It took the lawyers at least an hour to explain the details and ramifications to the board.
Next, as the board took up Hill's fate, he left the room, leaving his red chair at the head of the boardroom table empty.
The debate was quick. The vote was unanimous, participants said. The board would seek Hill's resignation.
Shortly before 9:15 p.m., board members called Hill back into the room. He wore his trademark crisp blue shirt with white collar, and a tie clip.
He looked at the document placed before him, and asked to speak to the board alone. "The lawyers said no," a person who was there said.
And so, "feeling the deck was stacked," he signed the document, according to a person sympathetic to the chairman.
Asked in an interview yesterday what went through his mind as he resigned, Hill said: "For 33 years, I've done what's best for the bank." He declined to elaborate.
Hill agonized over the decision "because this was his baby," the person close to Hill said, but ultimately quit because "he did not want to damage the bank."
After the meeting, executives put together a press package and a public-disclosure statement to be released the following morning.
It included kind quotes about Hill from board members. "Through the leadership of Vernon Hill, Commerce has become an iconic American retailer, redefining banking," board member Joseph S. Vassalluzzo wrote.
The press release did not include a comment from Hill.
Contact staff writer John Shiffman at 215-854-2658 or firstname.lastname@example.org.