- Key Insight: A day after disclosing the downgrade of a $99 million credit, Western Alliance executives answered tough questions from investors and assured them that the bank had learned from its "weaknesses."
- Supporting Data: On Monday, Western Alliance disclosed that a borrower had refused to repay a $99 million balance, which the bank downgraded to non-accrual status.
- Expert Quote: "We found the weaknesses, and we have improved them, and we've changed our guidelines along those lines." — Western Alliance CEO Ken Vecchione
At its first-ever investor day on Tuesday, Western Alliance Bancorp found itself on the defensive as investors asked tough questions about a problem loan that was disclosed earlier in the week, as well as charge-offs that marred the company's performance earlier this year.
One query that came up repeatedly was whether the Phoenix-based bank had learned from these events. Ken Vecchione, Western Alliance's CEO, said that it had.
"We found the weaknesses, and we have improved them, and we've changed our guidelines along those lines," Vecchione said.
The $98.9 billion-asset bank's presentation came just a day after its latest 10-Q came out. In it, Western Alliance disclosed that in late April a borrower refused to repay the $99 million balance on a commercial real estate loan tied to a "life-science laboratory/office building." Western Alliance downgraded the loan to non-accrual status.
Only a month before that, the company revealed that another borrower, the investment bank Jefferies Financial Group, had declined to pay the remaining $126.4 million on a loan connected to the now-bankrupt auto parts company First Brands. Western Alliance charged off the balance, and also
On Tuesday, an analyst asked whether after this "handful of one-offs," Western Alliance might do anything differently with regard to credit risk management in the future. Vecchione answered that an "outside firm" had taken a look at the bank's practices and mostly vindicated them.
"The underlying credit origination process was good," Vecchione said. "Where we fell short was, even though we followed customary and standard practices of the industry, those practices could be improved."
Other Western Alliance executives commented on the troubled loans as well. Lynne Herndon, the company's chief credit officer, said the life-science building debt was a year away from maturity when the borrower stopped paying.
"While we are disappointed in this outcome, I want to remind you that churn, and I call that credits in and credits out, is normal," Herndon said.
It is not yet clear whether the executives' words convinced Western Alliance's stockholders. On Monday, when news of the latest loan downgrade came out, the bank's stock price dropped by about 6%. On Tuesday, the stock climbed slightly upward but did not undo much of the previous day's damage.
Western Alliance has plenty of experience reassuring investors. During the regional banking crisis three years ago, the lender faced the beginnings of a bank run. Customers withdrew billions of dollars in deposits, and the bank's stock price plummeted by more than 80%.
But by responding quickly and transparently, Western Alliance
By mid-March, Western Alliance's stock was rising again, and by the end of 2023 it had gained back all its deposits and then some.
One lesson that could be drawn from that experience is that transparency can sometimes help amid adversity. On Tuesday, Western Alliance's executives said they are learning all the time.
"We're a learning organization," said Chief Banking Officer Tim Bruckner. "Everything that we do advises how we move forward."
