Milestone anniversaries are often a time of reflection.
BankUnited in Miami Lakes, Fla., was reborn a decade ago when John Kanas and a group of investors bought a failed thrift from the Federal Deposit Insurance Corp. over Memorial Day weekend in 2009, taking on $13 billion in assets and $8 billion in deposits.
The company has more than doubled its assets and tripled its deposits since. Kanas handed the controls to longtime lieutenant Rajinder Singh when he retired in 2016.
“That’s a lot of growth,” Singh said in a recent interview. “So you have to reinvent some of the inner workings of the company.”
Singh is now working on a plan for the next decade.
BankUnited plans to boost annual profit by $60 million — by cutting $40 million in costs and finding $20 million in new revenue — under an efficiency program set to run through 2020. That would represent a nearly 20% increase from the company’s 2018 net income.
BankUnited, as part of the effort, is joining the ranks of banks getting out of mortgage servicing.
Singh recently discussed how BankUnited can reach its goal, along with the potential for M&A and his interest in entering Atlanta in light of SunTrust’s pending sale to BB&T.
The following is an edited transcript of the conversation.
On the earnings call, you said the efficiency effort will not include hiring freezes, but there are reports that jobs will be cut. Can you clarify?
RAJ SINGH: I think there is consolidation that will happen, but often when companies do these cost-cutting exercises the first thing they do is put in a hiring freeze. It’s easier to just not hire people than to get rid of people. And then they’ll implement a freeze on pay raises … things like that. It works if you’re [only] focused on taking out costs.
This program was not really about taking out costs. That was not the main driver here, even though that is where a lot of the benefit will come. We looked at ourselves and said ‘what used to work four or five years ago and was optimal. … Is it still optimal today?’ And we found areas where we had to invest. We had not kept up, and so there’s investment in technology and people happening, but there are other areas where we have duplicate functions in different geographies and we can consolidate them.
Can you provide specifics on the job cuts or at least the types of positions under review?
It’s pretty universal. It’s across the board. I think the only area that I would point out is mortgage servicing, which is a business line we’re exiting because we don’t have scale. There are opportunities in finance and legal and compliance and even on the front lines. But we have not come out and said x number of people, and I don’t think we will do that.
What about branch closures? Can you give any specifics?
The general trend is that our clients are asking to interact with us more online than in a branch. We see customer demand changing and we have to react. So we’re basically reallocating money from brick and mortar to technology. So, yes, there will be branch closures, but it’s not that different than what happened last year or the year before. Our branch network has been slowly coming down and that trend will continue.
What else will comprise the $40 million in cost cuts?
The single largest driver is geographic consolidation. For example, we launched in New York five or six years ago. At that point we looked at the tools we needed in that geography to get up and running quickly. We hired ops people and support people and credit people. Not every one of those functions lends itself to consolidation, but some do. If you can consolidate them into one place … that’s what’s driving this. There’s no reason to have one marketing person sitting out there away from the mother ship when we can consolidate them into our marketing department. And you can replicate that across every function.
In terms of new revenue, what business lines might the bank enter?
Most of that is not coming from new business lines. It’s about looking at the business we’re doing currently and saying, “Are we doing a good enough job of selling deeper into our existing client base?” We did look at some products we sell where we have outsourced the product to someone else and we’re sharing a large part of the revenue. We’re looking at bringing that in-house and doing it ourselves.
Will we see BankUnited enter a new market any time soon?
We are looking at Atlanta because there’s a lot of disruption in the market due to the SunTrust-BB&T deal. We’re going to give it a hard look. But that’s the only new market that’s on our radar for the next two years or so. There’s enough to do it the metro New York and South Florida market that we could grow this company for the next two or three years with no issues whatsoever.
Our business model would work in Boston or Philadelphia or Chicago, but we’d rather keep mining deeper in our current markets rather than going into new markets.
What other potential fallout from the BB&T-SunTrust deal could benefit BankUnited?
Anytime there’s a deal it comes with a lot of angst and chaos in the organizations that are going through it. I’ve been through it myself. And with a merger it’s even worse, because they bring a lack of clarity, a lack of leadership and it creates a lot of anxiety throughout — in both organizations. That will create an opportunity for banks to pick up good people and business. We’re already seeing it. And I think we’ll see it even more once the deal closes. Clients get spooked by this kind of deal.
While we’re talking M&A, there has been speculation for years that BankUnited is setting itself up to sell. How do you react to that?
My philosophy is to keep building the bank as if it’s going to be around for 100 years, but if the right deal comes along [we must] be ready to make a move in a minute’s notice. I don’t run the bank with the expectation that we’re going to sell it in six months or a year. When you start to have a short-term view you start to make bad decisions. I have no idea if or when a deal will ever happen. But if the right deal comes along we’ll act on it. My job in the meantime is to keep building franchise value.
Have you stayed in touch with John Kanas?
He’s a close friend of mine. I speak with him often — not so much about the bank but about life in general. He’s having fun with his position at Carlyle. He’s looking at cool new companies in which to invest. Sometimes I feel jealous when I’m here dealing with the day-to-day business of running a bank.