At a time when banks need to distinguish themselves and boost revenue, Investors Bancorp Inc. is embracing a service that many banks are wary of: remittances.
The $8.9 billion-asset company in Short Hills, N.J., picked up the business when it bought 17 branches from Millennium bcpbank, the U.S. unit of the Portuguese bank Millennium BCP, which mostly serves Portuguese-American communities around Newark, N.J.
Kevin Cummings, Investors Bancorp's chief executive, said the business is an unexpected — but emerging — bonus. "I call the remittance business the dessert," he said in an interview this month. "That was just the icing on the cake … and it gives us a great relationship with a much larger bank."
Offering remittances could present opportunities with Millennium's clients, which include foreign companies with U.S. operations. It also has growth potential since Investors Bancorp has the infrastructure and employees to handle international wire transfers.
Investors Bancorp bought branches in New Jersey, New York and Massachusetts in October from Millennium BCP, which had decided to divest its U.S. operations. The company, based near Lisbon, has $131.7 billion of assets in eight countries.
"I think it's just a good sort of business banking relationship opportunity," said Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners LP. "My guess is that a foreign bank wants to still have the ability to do business in the U.S. and have a partner they're comfortable with and people that they know and view favorably."
Investors Bancorp bought about $205 million in assets, roughly 40% of the bank's performing loans, and signed a contract to service the rest of the portfolio. It also picked up $627 million in deposits. The company plans to sell four branches in Massachusetts.
It kept nearly all remittance employees, along with nearly all branch employees and more than 25 back-office workers. Management traveled to Lisbon to meet with top executives of Millennium BCP and visited the remittances call center, Cummings said.
"Really, it's almost like a strategic partnership," he said. "At the end of the day, they're both of our customers."
It could provide opportunities to work with the parent company down the road, for example, by participating in a loan to a Portuguese business with U.S. operations, Cummings said.
Remittances are another source of fee-based revenue for Investors Bancorp. It estimates the business will generate $1 million to $2 million of revenue a year. "This is definitely a means to help diversify their revenue stream," said Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
Cummings said it also accelerates plans to shift from traditional thrift activities, which focus on residential loans, to more commercial business. Investors Bancorp built that goal into its strategic plan several years ago when it raised $500 million to convert to a mutual holding company. It has expanded assets to nearly $9 billion from $5.5 billion in 2005, and completed four acquisitions in the past two years, including branches from Banco Popular in Puerto Rico.
Cummings said the company was not looking to offer remittances. In fact, many small banks shied away from it after regulators beefed up enforcement of the Bank Secrecy Act several years ago. The higher costs of complying with the law may have outweighed the benefits — with the exception of ethnic banks, Fitzgibbon said.
"They need to offer products and services that are attractive to the communities in which they operate," he said. "The remittance business is something that a lot of people in these communities desire and are willing to pay for."
Cummings said the service benefits retail and commercial clients, from people who own vacation or rental property in Portugal to restaurants importing wine and specialty foods.
Investors Bancorp has no immediate plan to expand, Cummings said. With the right tools in place, and a potential entry point into Latin America with its former Banco Popular branches, the company has not ruled out expansion. "We're open to it," he said. "Whatever the customers need, we're certainly willing to try it."