Last year, Minnesota banker Matthew P. Wagner found himself facing two discomforting thoughts: his 40th birthday and the prospect of another cold winter.
So when John M. Eggemeyer, a former boss and budding bank investor, offered Mr. Wagner the opportunity to help operate one of the fastest- growing community banks in the country, Mr. Wagner needed little goading.
In July, he said goodbye to the Midwest-and his executive vice president slot in corporate trust banking at First Bank System-to chase a California dream.
Today, Mr. Wagner is president of Western Bancorp, an $850 million-asset institution with branches stretching from Laguna Niguel in southern Orange County to west Los Angeles. He is expected to become chief executive officer within a year, succeeding Hugh S. Smith Jr., 66, a courtly veteran of California banking who has been a mentor to his younger colleague.
Though Mr. Wagner, 40, is still unnerved by California drivers, he's more confident about his ability to win over discriminating investors like Michael Price and Harry Keefe.
"I didn't come out here for a three-year play," Mr. Wagner said during a recent company retreat in La Quinta, a desert town 100 miles east of Los Angeles. "I'm here to satisfy some of the toughest shareholders in the country."
Though the value of the Los Angeles-based holding company's thinly traded stock has more than tripled in the past year, the jury is still out on whether the management team that Mr. Eggemeyer assembled can keep up the success as the company grows.
While the resurgent Southern California economy is on track to outpace the rest of the nation over the next few years, the competition has also gotten stiff. Wells Fargo & Co. and others are making a strong play for the small and midsize customers of community banks.
"A couple of years ago, if you were making any loan out here, you were the last soldier standing," said Scott Burford, principal of La Crescenta, Calif.-based Burford Capital. "But today, the competition is heating up."
Western Bancorp is clearly moving at a far more rapid pace than most banks as it reaches for the benefits of scale.
"From a strategic standpoint, these guys know what they are doing," said Ray Garea, senior vice president of Franklin Mutual Advisors, a fund management operation run by Michael Price. Franklin owns almost 10% of Western's stock.
Castle Creek Capital, an investment group led by Mr. Eggemeyer, used the 1995 purchase of struggling, $55 million-asset Monarch Bank as a foundation for growth in community banking.
Last Sept. 30, the parent bought Western Bank, a highly regarded Los Angeles institution run by Mr. Smith. And last Wednesday, the company closed its purchase of California Commercial Bankshares in Newport Beach.
When the company's third acquisition, of SC Bancorp, Anaheim, closes later this year, total assets will be close to $1.4 billion, up 25-fold in two years.
"I have never heard of anything like this," said Mr. Smith.
The pace hasn't let up. Last week alone, Western held an annual meeting, changed the company name from Monarch Bancorp to Western Bancorp, closed the acquisition of California Commercial, engineered a reverse 8.5-to-1 stock split, and began trading on the Nasdaq market. The stock began trading Wednesday morning at $30. It closed on Thursday at $29.50.
The holding company's strategy, as articulated by Mssrs. Eggemeyer and Wagner, is fairly straightforward:
Buy banks with relatively low-cost deposits that cater to small and medium-size businesses in affluent pockets of Southern California. Monarch Bank, the original acquisition, was a $55 million-asset bank, even though at the time of the acquisition it operated out of a single branch; that's assets per branch of almost twice the state average. And Western's average office size was $80 million.
Lop off costs associated with duplicative operations, such as multiple headquarters, software contracts, layers of management, and director compensation. Arnold C. Hahn, chief financial officer, said the bank should be able to generate cost savings of 20% to 30% from the banks it has acquired.
With a strategy that relies largely on cost cutting, it is no accident that Eggemeyer chose Mr. Wagner.
Mr. Wagner came in after 11 years at First Bank System, an institution that lives by the cost-cutting philosophy of chief executive officer John F. Grundhofer. Mr. Eggemeyer, then a top corporate trust executive at First Bank, recruited Mr. Wagner in 1985 to join the Minnesota bank.
"First Bank System doesn't build revenue. It buys revenues and cut costs," said Mr. Eggemeyer.
Said Mr. Wagner, "There is hardly a person in that company that doesn't think about every dollar they spend. It even runs over into your personal life."
While cost is something Mr. Wagner can control, he won't have a say over the state of the economy. But on that count, he is optimistic.
Orange County, which suffered through a decline in the local defense and aerospace industries in the early 1990s, began recovering in 1994 and is poised again to become one of the most prosperous counties in the state, if not the nation.
According to Economic Development Corp. of Los Angeles, 47 businesses either expanded or relocated to the sprawling suburban county last year, almost four times the 1995 number. Surrounding counties are also growing, though at a slower pace.
The region benefits from a rich mosaic of small and midsize businesses, ranging from light industry to real estate development, services, and, of course, the entertainment mecca in Los Angeles.
Said Mr. Smith, "With this economy, our customers will be 10% better off next year than they are today."
Despite the euphoria about the economy, the architects of Western Bancorp's strategy recognize it is no picnic to merge this many banks in so short a period. Integrating back-office systems is not the issue, they say. It is more a question of smoothing out cultural differences.
Mr. Eggemeyer said, "It isn't an issue of having a defined culture and forcing people to come into that culture. Our culture is fluid and redefined every day."
Welcome to banking, California-style.
