Bank of the West is looking east. The $86.9 billion-asset subsidiary of BNP Paribas recently set up commercial loan offices in Cleveland and Dallas as part of a broader strategy to win middle-market business nationwide.
The San Francisco bank faces some name recognition challenges in a field that’s already well banked by large regionals such as KeyCorp and PNC Financial Services Group. But at the same time, the bank is hoping its international network can help it win new middle-market clients, particularly in Rust Belt markets that stand to benefit from an increasing focus on manufacturing.
“We do see this as a regional opportunity for Bank of the West,” said David Dannemiller, managing director overseeing the bank’s new Cleveland office. From that post, Bank of the West hopes to reach a number of markets in the region — including Ohio, southeastern Michigan, western Pennsylvania, northern Kentucky and western New York — with Cleveland smack dab in the middle of it all. “The bank really had nothing in these markets and viewed Cleveland as the best place to start building out some presence and scale in the Midwest.”
From its Dallas post, Bank of the West will focus on businesses in Texas, Arkansas, Oklahoma and Louisiana.
Part of the bank’s strategy involves hiring local bankers who already have some connection to the market. Before joining Bank of the West, Dannemiller spent most of his 25 years in banking in Cleveland, most recently running Fifth Third Bancorp’s corporate banking team. And Susan Garner, now head of the bank’s commercial loan office in Dallas, was previously a commercial banker in Dallas with Citigroup. Bank of the West also opened an Atlanta office in 2014.
Chris Marinac, an analyst with FIG Partners in Atlanta, said Bank of the West may have an “opportunity to pick up market share” from Midwestern regionals for two main reasons. One, the Midwest stands to benefit from an increased focus by the federal government on lifting up the manufacturing sector, and Bank of the West’s international reach might benefit it when dealing with some of those customers, he said. Secondly, national banks like Bank of America and Wells Fargo tend to be focused on larger, coastal markets, leaving it some potential elbow room, he said.
Marinac also said Bank of the West might be looking to pick up deposits in Cleveland. With around $60 billion in loans and $64.1 billion in deposits as of June 30, the bank’s loan-to-deposit ratio hovers around 94%, and those same business borrowers Bank of the West is targeting for loans could be a source of deposit growth, he said.
“They may have tapped all their sources for deposits in the California markets,” Marinac said. “They’ve got a big market share in California. They do well. It’s nothing negative, but you can only push so much juice out of the grape. You have to go find more grapes if you’re going to produce more wine.”
The bank’s first challenge is one of name recognition. Many in the Cleveland market know its parent company, the $2.5 trillion-asset BNP Paribas in Paris, but far fewer know Bank of the West, Dannemiller said.
He thinks that Bank of the West can set itself apart from the competition. The bank’s California presence would be a benefit to middle-market companies doing business on the West coast, and its international presence, via BNP, should appeal to companies that are either doing business overseas already or at least thinking about it, he said.
Bank of the West is hoping to steal away middle-market and larger companies, and at least for now, the bank is focused more on commercial and industrial lending and less on commercial real estate or commercial real estate development.
Dannemiller said that Bank of the West landed five transactions in the first half of the year. He wouldn’t get into too many specifics, but said the smallest transaction was in the low eight digits and the smallest company was in the low nine digits by annual sales. Those deals took place in the health care, retail, industrial manufacturing, service and distribution sectors, Dannemiller said.
“I didn’t plan it to be that granular when we started, but it tells the story,” he said. “We’ve got a bunch of different sectors where we can compete well, and it paints a picture of the kinds of things we’re trying to do.”
Dannemiller said Bank of the West hasn’t yet bumped up against some of the issues other bankers have cited in commercial lending — chiefly, a reluctance by commercial customers to invest in their businesses until they see more certainty on issues like tax reform or health care reform.
The Cleveland metropolitan area has grown at a slower rate than the rest of the country. Cleveland’s gross domestic product grew at a rate of 2.3% in 2015, compared with 2.9% nationwide, according to the Federal Reserve Bank of Cleveland.
But employment has rebounded and remained steady, and Dannemiller said that Cleveland is also benefiting from an influx of younger workers. A report commissioned by the Cleveland Foundation backs up this second assertion. Between 2011 and 2013, Cleveland ranked eighth nationwide for growth of college-educated workers between 25 and 34, alongside Seattle and Tampa.
Those all give Dannemiller reason to believe that Bank of the West chose well in picking Cleveland as a strategic position for winning middle-market business.
“The economy seems like it’s clicking on all the right cylinders here. It’s become more diversified and it’s becoming an attractive place for people to move to, and they’re bringing jobs and creative talent to the market,” he said. “All those things are benefitting us, and the overall health of the region is as strong as I’ve seen it in my 25 years of banking here.”