Management can make or break a bank, and unfortunately, there are too many readily available examples to prove that point. In our special premium reports on key banks in the industry, we look at management as a component of success or, in some cases, failure. This is an excerpt from our report on New York Community Bank (NYSE:NYCB).
Even though there are a multitude of quantitative statistics that investors can use to gauge the quality of a company's leadership, I always start with the least scientific measure of listening to quarterly conference calls. Do the executives appear to be honest? Do they present the good news as well as the bad? Do they dodge hard questions instead of giving forthright answers? And last but not least, do they come across as respectful and temperamentally sound? If they pass these tests, and many have not, then I move on to the more straightforward, numerical metrics.
In short, executives both in and outside of the financial industry could learn a lot about how to run a professional and informative conference call from New York Community Bank's chief financial officer Thomas Cangemi and longtime chief executive officer Joseph Ficalora. They present highly pertinent information and don't obfuscate by editorializing about the state of the economy or the company's intangible accomplishments. They back up pointed answers from analysts with pointed responses supported by facts and figures. And they demonstrate a unique grasp of the specifics of their operation, showing that they haven't detached themselves from the proverbial front lines.
In addition, Ficalora himself evidences a number of desirable traits from an investor's perspective. Unlike the former head of Citigroup (NYSE:C), who was a so-called hired gun that previously ran a hedge fund, Ficalora worked his way up through the ranks at New York Community Bank starting in 1965. By doing so, he's helped make both himself and the bank's long-term investors rich. He personally owns 4.9 million shares of its common stock, valued at nearly $70 million today, and since taking the company public in 1993, it has returned an astounding 2,500% after adjusting for dividends.
The secret to Ficalora's success is sophisticatedly simple: He runs the bank like it's a bank. In the words of an investment fund manager who's been a longtime shareholder (emphasis added): "Banking is at heart a simple business. You take deposits, make loans, and you don't take big risks. A lot of people forgot that [during the financial crisis]. Joe never did." Indeed, over the past five years, while many of its competitors teetered on the brink of failure thanks to poor risk management related to lending practices, New York Community Bank has written off a mere $0.54 for every $100 of loans. "That figure is so out of step with the bank's peers," says a recent biographical sketch on Ficalora, "that it's almost as if [he] is operating on a different planet."
To top things off, both he and Cangemi have exercised extreme restraint over the past few years, remaining content on the sidelines as many of the bank's competitors have quenched their acquisitive thirsts by overpaying for acquisitions in the name of growth. Referring to the spate of acquisitions by Capital One, M&T Bank, and First Niagara Financial Group, among others, Cangemi stated on a company conference call that (emphasis added), "We're not surprised by transactions that have traded. I think the reality is that, as Joe [Ficalora] said, it's going to be a shareholder transaction, where the value's created [by] combining... It's not about getting bigger and not putting strong returns. A deal in this market for us would be highly accretive to shareholders."
Last, but certainly not least, New York Community Bank returns capital to shareholders almost to a fault. In this day and age of declining yields and disguised executive compensation masquerading about as share buybacks, the significance of this final point cannot be overstated, and it's yet another feather in management's cap.