Wintrust Sees Room to Go Big in Chicago

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Ed Wehmer started Wintrust Financial Corp. (WTFC) two decades ago in the wake of the last big banking cycle. "We had no illusions of grandeur," he recalls. "We thought we'd have a couple of banks and live the life of George Bailey."

Back then, a host of local names-First National Bank of Chicago, Continental Bank, Harris Trust & Savings and LaSalle National Bank among them-dominated the Windy City's banking scene. Wehmer's investor clients in suburban Lake Forest appreciated having big, locally run banks nearby, but also wanted a more personal touch.

Today, the giants are gone, having been gobbled up by bigger, out-of-state companies, leaving $17 billion-asset Wintrust, with its 112 branches, $12.5 billion in deposits and 4 percent market share, as Chicagoland's largest independent commercial banking company. (Northern Trust is still there, but it has maintained a wealth management focus.)

For Wintrust, it's an odd twist of fate-the outfit was launched as an antidote to larger institutions. But Wehmer considers the lack of even one homegrown bank to carry the city's flag on the global stage as something of an embarrassment.

As they gathered last summer to celebrate Wintrust's 20th anniversary, he and his board decided to try to do something about it. "We said, 'Chicago is the best city in the world. It deserves to have its own big bank. Why can't we be that bank?'" Wehmer says.

"So we're going to make a run at it. Our plan is to get into all 50 neighborhoods in the city of Chicago, and to be in every suburb," he adds. "We think we can do it."

Last year, Wintrust moved about 25 miles closer to the city, relocating from Lake Forest to Rosemont, Ill., which borders Chicago directly to the northwest.

Befitting the market's competitive nature, Wintrust isn't the only institution in position to pursue the mantle as Chicago's hometown banking giant.

At least three other commercial banks with local roots - PrivateBancorp (PVTB), MB Financial (MBFI) and First Midwest Bancorp (FMBI) - are frequently mentioned as contenders.

Each of Chicagoland's so-called "Big Four" has emerged from the financial crisis bigger, stronger and smarter than when it started. They all have the potential to be buyers in a market that is decidedly overbanked.

Each also could be an attractive target for one of the out-of-state giants angling for a bigger share of what is perhaps the nation's most dynamic banking market. Christopher McGratty, an analyst with Keefe Bruyette & Woods, says Chicago's Big Four are "the most logical candidates" to power a consolidation that he sees as being necessary "just for profitability's sake."

Chicago might deserve its own local flag carrier, but that doesn't mean it will get one. Aside from Wehmer, no banker will publicly acknowledge coveting the status, though the idea appears to have at least crossed their minds.

Shortly after Bank of America (BAC) acquired LaSalle in 2007, PrivateBancorp hired away 300 bankers, including CEO Larry Richman. The company has doubled in size since, to $13.3 billion in assets, fueled by more than 800 "significant business relationships" lifted from the old LaSalle.

"What we found was that it was important to Chicago to have a hometown business relationship bank," Richman says. "There was a real sense of loyalty."

Mitchell Feiger, CEO of $9.5 billion-asset MB Financial, says he researched the value of local crowing rights and came up with a slightly different answer. "Is it an advantage to be known as 'Chicago's bank?' It used to be, but I don't think it is anymore. Money is money. People don't care anymore where a bank is headquartered."

Nevertheless, the coming consolidation predicted for Chicago seems likely to pass through the Big Four. The question is, when will it happen?

The chief holdup is pricing. Acquirers are stepping cautiously, afraid of getting snared by someone else's credit issues. They'd just as soon wait for a troubled bank to fail, and get guarantees from the Federal Deposit Insurance Corp. on the loans.

Wehmer says most Chicago banks looking to sell nowadays aren't worth buying. "We get at least one inbound call a week," he says. "The problem is, there's too much stress in their portfolios. Once we apply our marks, then either the pricing isn't good enough or we don't want them."

In one of Chicago's few recent, non-FDIC deals, Wintrust bought $390 million-asset HPK Financial in the city's Hyde Park neighborhood last September for 1.01 times book value. (Nationally, the average premium for bank deals in 2012 was just 1.13 times book value.)

"If you're a healthy bank, why would you merge now?" asks Todd Grayson, executive vice president of Chicago's $225 million-asset South Central Bank and a member of the Community Bankers Association of Illinois audit committee. "The premiums aren't there."

Still, the case for consolidating Chicago is strong. The metropolitan statistical area boasted $314 billion in deposits at the end of last June, fourth most in the country, according to the FDIC. But its 249 banks were the most of any MSA-including New York, which has four times the deposits.

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Comments (2)
"We tell people the 'M' in BMO Harris stands for Montreal, the 'P' in PNC stands for Pittsburgh, Fifth and Third are two streets in Cincinnati," he says. "Our motto is, 'Bring it home, Chicago.' We'll see if it works."

Yah, I wonder what the WTF in WTFC stands for.
Posted by crankysam | Friday, February 08 2013 at 6:38PM ET
Chicago is one of the most competitive markets in the U.S. In 1983, the middle market was dominated by Continental (pre-Penn Square). Then it was American National Bank & Trust Company of Chicago, which every other bank has since tried to emulate. But, alas, ANBATCO was acquired by First Chicago/Bank One/Chase and disappeared as a brand and an entitiy. The talent went down the street to Exchange, which was acquired by LaSalle, and for a while LaSalle was the predominant middle-market lender. It then slipped, and was sold to BofA which for reasons no one will ever understand, dissolved it. No one has been able to fill the gap since, and there are good reasons to believe no one will. Chicago will always invite competition. All a bank can do is carve a niche and defend it mightily. No bank can be dominant in this market. Wintrusts market share is still small, and will never approach the 20% share once enjoyed by Continental Bank.
Posted by Pegasus Intellectual Capital Solutions | Tuesday, February 12 2013 at 8:00PM ET
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