On Dec. 16, 2017, Robert Wilmers, the chairman and CEO of M&T Bank (NYSE:MTB), died suddenly at his home in New York City.
He was 83 years old. Over the previous 35 years, he had climbed to the summit of finance, transforming a listless depository institution in Buffalo, New York, into one of the top-performing regional banks in America. Along the way, he created more value for the shareholders of M&T than any other CEO at any other publicly traded bank.
The job of continuing this legacy fell to Rene Jones. The 25-year veteran of M&T, then serving as its chief financial officer, was part of a triumvirate of officers who, following a series of tragedies, had skipped a rung on the corporate ladder. Three years earlier, Jones' mentor and the bank's vice chairman of the board, Michael Pinto, died at age 58 after an extended battle with bile duct cancer. And just 10 months before Wilmers passed away, M&T's president and chief operating officer, Mark Czarnecki, succumbed at age 61 to pancreatic cancer. They had been known around M&T as the heir and the spare.
When conducting due diligence on a bank, it's easy to obsess over concrete facts and figures. Return on equity. Net interest margin. The efficiency ratio. Each of these metrics matter, of course, yet all of them spring from a common source: decisions made by people. This is true in any industry, but especially banking, a business defined by mountains of leverage and minuscule margins for error. To understand a bank, in turn, one must understand the people making its decisions.
In Jones' case, it helps that the 56-year-old chairman and CEO of M&T has followed in his predecessor's footsteps by writing one of the most lucid and wide-ranging annual letters in banking. This year's is no different. But to understand the issues Jones confronts in his latest letter, it helps to know his story.
In late December 1944, Matthew Jones found himself in Flemalle-Haute, a small village in eastern Belgium, 20 miles from the German border.
Jones was an infantryman in General Patton's Third Army. They were heading south toward the Ardennes, a densely forested region through which the Germans had launched a final, desperate offensive of the war -- the Battle of the Bulge.
As the 20-year-old soldier marched with his unit through town, his thumbs in his suspenders, according to family lore, a young girl waved at him and then vanished into her house. Jones broke ranks, walked up to her house and knocked on the door.
Her father answered.
"Can I help you?" he asked.
"Yes," Jones said. "I've got some work to do, but I'll be back, and I'd like to sit and talk with you about meeting your daughter."
"Well, if you come back," the 18-year-old girl's father said, "I'd be happy to introduce you."
Both proved true to their word.
Six months later, Rene Jones' parents were married.
The growth of M&T
In 1980, a dozen years before Jones joined M&T as a member of its management training program, a 47-year-old Robert Wilmers started accumulating shares of First Empire State, the then-holding company of M&T.
If an award existed for Most Interesting Person in Banking, Wilmers would have won it by a landslide. His mother's family was reputed at one time to be the biggest fur dealers in the world. His father, raised in a patrician household in England, had become president of Sofina, a Belgium-based multinational utility holding company that, in an especially infamous chapter, locked horns with a confidante of Spain's General Francisco Franco who succeeded at stealing one of Sofina's subsidiaries the way a thief pockets a candy bar.
Fortified by an inheritance from his father, who passed away in 1980, Wilmers retired from his job overseeing the Belgium operations of Morgan Guaranty Trust and drew up a list of banks to invest in. He had three primary criteria. The bank must be between $1 billion and $3 billion in assets. It must be cheap. And there must be a direct flight between its headquarters and New York City.
M&T checked all the boxes.
It had $2 billion in assets, making it the fourth-biggest depository institution in Buffalo. It had fallen on hard times after succumbing to the allure of international lending, driving its stock price down to a third of book value. And you could get to Buffalo without changing planes.
So Wilmers, leading a small group of investors, purchased nearly a quarter of M&T's outstanding stock and, in 1983, assumed the roles of chairman and CEO.
Wilmers' approach at M&T over the next three and a half decades would coalesce around three pillars. First, M&T's operating efficiency ratio ranked consistently in the bottom quartile of its peer group of large regional banks. Second, its average net charge-off ratio for over three decades had been half that of its peer group average and just a third of the industry average. Finally, between Wilmers and a small coterie of aligned investors, including his longtime friend, Warren Buffett, Wilmers exercised control over nearly 60% of the bank's outstanding common stock.
"Bob kept things simple, and he had a strong belief in talent," Jones explained soon after succeeding Wilmers. "If you think about that combination -- of keeping things simple and hiring really talented people -- it allowed us to get very deep into issues and very knowledgeable about the customer and how to understand what they needed."
This sounds trite until you consider the results.
Of the 100 largest banks in 1983, the year Wilmers became CEO of M&T, only 23 remained at the time he passed away in 2017. Of those, M&T ranked first in terms of stock price growth, generating a 14.5% compound annual growth rate over the preceding 35 years. A mere $1,200 investment in M&T the year Wilmers started accumulating its stock was worth $1 million by the end of his tenure.
Raising Rene Jones
Jones projects the polished demeanor of a banker wise beyond his years. Calm. Friendly. Confident. A combination it seems of his mother's resilience, his father's disposition, and his predecessor's charm.
His mother's family ran a grocery store that served as a black market in their village during World War II. Her uncle was shot after German soldiers discovered his radio. During air raids, while the rest of her family took shelter in the basement, Jones' mother, rebellious by nature, retreated to her favorite corner of the house. The one time she went downstairs at the behest of her father, half an airplane crashed into that corner.
"She would defend you regardless of what you did," Jones says. "Think of the worst thing you could possibly do, the most trouble you could get into, and you still had her. Didn't matter. She was with you the whole time."
Jones' father grew up on a farm in Virginia, one of 13 kids. He loved to hunt and fish. He was physically fit. At one point, Jones' family had a bunch of pointers, hunting dogs bred to run, and it would be a common phrase for his dad to say, "I'm going out to run the dogs" -- he would run, that is, and the dogs would try to keep up. And he was contemplative. "I don't know, it's hard to say," he'd respond if you asked him a big question, or if you could do something.
One thing that struck Jones about his father was his belief that you could do anything. A product of farm life, perhaps. He decided one day to build a garage, Jones remembers. Books about building structures started showing up at the house. "Are you reading these for any purpose?" they'd ask. "I don't know, it's hard to say," he'd answer. The next thing Jones knew, his father was holding him upside down by his feet so he could dig holes in the ground to secure the corner posts.
When Jones' father retired from the army, in 1963, the family moved to Ayer, Massachusetts, where he worked for the next 22 years in the food services department at nearby Fort Devens. That's where Jones was born and raised, the youngest of six children. He would go on to get a bachelor's degree from Boston College, work for a few years in accounting and get an MBA at the University of Rochester before, in 1992, finding his way to M&T.
The birth of the modern M&T
"The tenets of our approach to being a bank for communities," Jones writes in his latest shareholder letter, "are characterized by responsible lending based on the advantages of local knowledge and scale, straightforward products that are easily understood by our customers, a philosophy that we do not compete on price, an operating belief that employees are our most valuable strength, and that we are prudent stewards of our shareholders' capital."
The echo of Wilmers is unmistakable. "The more I thought about it, the more I went back to this idea that it's about keeping things simple," Jones said eight months after taking over.
Yet it's too simple to think of Jones as a linear extension of his predecessor. The landscape of banking today, combined with Jones' unique perspective on it, have alighted M&T on a new trajectory. Not a break from the past, but an iteration upon it.
M&T's recently announced acquisition of People's United Financial, a $63 billion bank based in Bridgeport, Connecticut, provides a case in point.
In one sense, it's a textbook deal for M&T. Even a cursory glance at the respective footprints reveals its logic. People's is the second-largest full-service commercial bank in New England, with an almost perfectly contiguous presence to M&T's mid-Atlantic network. Unlike M&T's previous deals, however, People's was neither troubled nor selling for a discount. To do the deal, M&T paid a 64% premium to People's tangible book value.
But Jones is operating in a different era. Acquisition opportunities are fewer and further between. There are a third as many commercial banks today as there were 40 years ago. And those that remain, by and large, reflect the survival of the fittest. It's a seller's market -- one in which, as Buffett once opined, "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Jones is leading M&T into the modern era of digital banking, as well. For years, M&T fought the impulse to lean into the digital transformation. But that's no longer a luxury it can afford. Upwards of 90% of deposit transactions at large banks are completed digitally nowadays. And nearly half of total sales are now happening over digital channels, catalyzed by the coronavirus crisis over the past year.
"In a year when others chose to slow investment," Jones writes in this year's letter, referring to M&T's technology-related investments, "we soldiered forward."
The signature element of M&T's strategy is a $37 million tech hub in downtown Buffalo, set to be unveiled this year. It's one of the most anticipated and closely followed projects in the city. "Our new campus -- located in a revitalized local landmark and co-located with housing, common areas, restaurants and bars — will become the centerpiece of our downtown corridor and will build, support and nurture the type of ecosystem that draws investment, talent and Creative Class visionaries and disruptors not only to M&T but to the Western New York community," Jones writes.
Yet while Jones' most tangible legacy to date may be the expansion and modernization of M&T, his most unique contribution -- and one he's uniquely qualified to opine on -- is also the hardest to measure.
Breaking ground in banking
When Jones' family moved to Ayer, Massachusetts, in 1963, one of the first things his father did was hire a contractor to build a house. It was in a new neighborhood just down the road from his job at Fort Devens.
His father visited the house each day to check on its progress. But one day when he came by, another family was touring it.
He called the builder. "What's going on? There are people in my house."
"Mr. Jones," the builder replied, "I'm sorry, but the people in town told me that if I sold the house to an African American, I would never sell another house in this town again."
Jones comes from a mixed household. He's one of only four African-American CEOs in the Fortune 500, and the only Black CEO of a major bank. His mother was white. His father was Black. He describes himself and his five siblings as representing every shade on the black-to-white continuum, with him falling closest to his mother.
"Picture this: We're on a military base, I'm me except my hair is braided and I've got cornrows, and I'm bagging groceries," he says, recounting a story from childhood. "It happens to be that my mom is in line when someone says, 'Why is that kid trying to look like he's an African American?' Of course, my mom can't be quiet about it, right? She has to say, 'Well, that's my son, and he is.'"
The more you study accomplished leaders, in banking and elsewhere, the more you notice a commonality. Adversity often lurks in their past. Some grew up in poverty. Others experienced the premature death of parents. And in Jones' predecessor's case, some were adopted as children -- Wilmers' adopted father met his biological mother on a transatlantic steam liner in 1935, when Wilmers was 2.
"Sometimes adversity is what you need to face in order to become successful," marketing and management guru Zig Ziglar once wrote.
Perhaps there's something to that.
It's hard to find a more concise summation of what it takes to run an extraordinary bank than Warren Buffett's 1990 letter to the shareholders of Berkshire Hathaway.
He explains in it his rationale for acquiring 10% of Wells Fargo -- the old Wells Fargo, that is, before a merger eight years later inoculated it with the blindly ambitious sales culture that has since sullied its brand.
"The banking business is no favorite of ours," Buffett wrote. "When assets are twenty times equity -- a common ratio in this industry -- mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks." The source of the mistakes, Buffett goes on to write, is what he calls the "institutional imperative" -- "the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so."
You find this time and again in the history of banking. "The 'sound' banker, alas! is not one who foresees danger and avoids it," John Maynard Keynes wrote in 1934, "but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him."
Rote contrarianism isn't the answer. The answer lies instead, as Jones once observed about his predecessor, in fierce intellectual independence.
"Bob had deep convictions, a tremendous sense of right and wrong," Jones explained. "To get him to change his convictions, it just didn't happen. He had his beliefs. It didn't matter if he was the only one in the room with a belief, he would stay on top of it until he totally understood it."
Where does this come from? Why does a person like Wilmers have it while so many others don't?
Part of it, certainly, is a product of genetic temperament. "The great man," Emerson once wrote in an essay of deep personal significance to Wilmers, "is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude."
But it also seems to come from a combination of one's experiences and environment. That's where adversity comes in. Properly parlayed, it conditions one to pursue what's right, even if isn't particularly popular.
That's the key to understanding Jones, I believe, and therefore the modern M&T. His upbringing in a mixed household, proximity to one of the most accomplished bankers of the modern era, and the deaths in close succession of three colleagues, imbue him with a rare capacity to confront the challenges faced by banks and society today.