A little more than five years ago, John Adam Kanas, the sharp-tongued and cost-obsessed chairman of North Fork Bancorp, sensed growth would slow at the company, and he began to think about selling it.
After explosive growth during the mid-1990s, North Fork, of Melville, N.Y., was facing tougher competitors in its home markets and in its main business - commercial banking for small and midsize companies and entrepreneurs. Mr. Kanas had a plan to move into Manhattan by building branches, but so did many of his rivals.
Instead of joining the many sellers at the time, he set out to beat them. Mr. Kanas, who is also president and chief executive officer, has presided over 10 acquisitions since 1995 (two are still pending), and his company is now 10 times larger than it was at the beginning of the 1990s. Along the way, he says, he discovered that North Fork did have a niche, as one of New York's growing independent regionals.
By 1999, Mr. Kanas recalled in a recent interview, management was "beginning to believe that we could flourish and that we had something here that could become an important banking franchise."
North Fork is on the cusp of another transformation. It is in the middle of a $6.3 billion acquisition of one of New York's largest thrifts, GreenPoint Financial Corp., that will boost its assets to over $50 billion, double its branch network, and catapult it into such businesses as no-documentation mortgage lending. The deal is set to close in the fourth quarter.
Mr. Kanas, 57, insists he is not playing catch-up with the big banks. In fact, sitting at a conference table in his Long Island office, his back to a panel of windows that look out on a building occupied by FleetBoston, he coyly suggests that there can be advantages to being a smaller company.
Having a tight geographic radius and a limited set of products reduces risk, he says. "The key to survival in this and any other business is to make yourself important to some component of the universal customer available."
"We have picked certain products and services and will always make sure that we are better than everybody else at delivering these products and services," which are tailored to support entrepreneurs, self-employed people, and other businesspeople in the middle market and lower middle market, Mr. Kanas says. Here, "nobody can beat us."
As of June 2003, J.P. Morgan Chase & Co. was the New York market leader, with a 30.4% deposit share, and Citigroup Inc. was second with 25.6%, according to the Federal Deposit Insurance Corp. North Fork ranked ninth, with 1.7%.
Combined with eighth-ranked GreenPoint, which is based in Manhattan, North Fork would move to sixth place. But that would be after yet another colossus moves in. Bank of America Corp, which bought FleetBoston this month, would beef up its market share to 3.77%, from 2.58%, and rank fifth. Bank of New York Co. Inc. and HSBC PLC of London would be third and fourth.
Despite his smaller-is-better talk, Mr. Kanas hasn't been shy at the deal table. Five acquisitions between 1995 and 1999 more than quadrupled North Fork's assets, to $12.9 billion, and they nearly doubled in the three years after that, to $21.3 billion.
Last year North Fork crossed the Hudson River, opening branches in New Jersey. Eager for a meaningful share of the affluent commuter suburbs there, Mr. Kanas announced in December that his company was buying the $4.3 billion-asset Trust Co. of New Jersey. (The $726 million deal for the Jersey City company is set to close this quarter.)
Then in February, Mr. Kanas struck his biggest deal yet, with GreenPoint.
Last year 85% of North Fork's income came from lending, but mostly to businesses. Commercial and construction loans, and multifamily mortgage loans made up 71% of its loan book, or $8.8 billion, while consumer and mortgage loans totaled $3.5 billion.
Lana Chan, an analyst with Mony Group Inc.'s Advest Inc., said it served North Fork well that Mr. Kanas did not overdiversify. "He has avoided spreading his focus into things like insurance [agency] and asset management - that actually benefited him," she said. "He focuses on the bread and butter that he knows."
That is perhaps why the GreenPoint deal raised eyebrows. GreenPoint specializes in consumer deposit-gathering and retail mortgage lending, especially to high-risk borrowers.
That would seem to suggest a radical change in direction for North Fork, and speculation is that the move was actually a bid to stay independent. Mr. Kanas denies this. "There was no great plan of survival," he said. "North Fork had prospects without GreenPoint."
Some say that Citi, which was said to have competed with North Fork in the bidding for GreenPoint, decided to step aside in that deal because it was more interested in buying the combined company some years down the road. A Citi spokesman said it would not discuss the rumors. It is a scenario Mr. Kanas would not dismiss, though he said he currently sees no reason to sell.
"Is a $50 billion bank that is run well … attractive as a takeout candidate? The answer is obvious," he said. "But we are not building that company to be an attractive takeout candidate."
Analysts agree that North Fork's market share gives it ample opportunity to grow, on its own and through acquisitions. But rumors on Wall Street have it that Mr. Kanas promised GreenPoint chairman and CEO Thomas Johnson a "double dip" - that he would sell North Fork a few years on to a bigger bank.
Mr. Kanas, who said he also had heard of such talk, remarked, "That would be an odd thing to promise someone." A spokesman for GreenPoint declined to comment.
Mr. Kanas, who has been running North Fork for 28 years - he jokes he may well be the longest-running CEO in banking - has a reputation as a skilled and prudent dealmaker and a ruthless cost-cutter. The company is famous for its low efficiency ratio - the measure of how much it spends for every dollar of revenue it generates. That figure was 34.3% at the end of 2003, among the lowest in the industry. Last year the average efficiency ratio among FDIC-insured companies was 56.59%.
Evidence of Mr. Kanas' thriftiness abounds in the corporate headquarters, where members of the senior executive team are known to answer their own phones. There are no media relations or investor relations contacts; Mr. Kanas deals with the press and the public directly.
He also has shown a flair for the dramatic, despite his professed aversion to risk. In March 2000, Mr. Kanas surprised the industry with a $1.88 billion hostile bid for Dime Bancorp, which was in the middle of a deal to sell to Hudson United Bancorp. Dime's deal with Hudson fell apart and it ended up selling to Washington Mutual Inc. in 2001.
Mr. Kanas said he had discussed the possibility of a deal with GreenPoint management for years, but until February the thrift had been weighing other options, including splitting off its mortgage company.
Analysts noted the attractive combinations of branch networks, deposit bases, and potential strategic synergies. "The deal combines a bank with a proven skill set in commercial banking with a bank that has a proven skill set in consumer banking," Advest's Ms. Chan wrote in a research note after the deal was announced.
In that sense the move is risky, some say. In an interview Monday, Ms. Chan said some investors might fear that the new lines of business will distract North Fork, which has succeeded with a sharply focused strategy. On the other hand, Ms. Chan said, the deposits from GreenPoint will add to North Fork's loan funding pool and therefore make the company more competitive.
But North Fork's shareholders could see their holdings hit if Wall Street extends the discount it gave to GreenPoint's mortgage operations to the combined company. Mortgage lenders tend to trade at a lower price-earnings ratio than banks. North Fork's stock, which reached a 52-week high the day after the deal was announced, is down 12.2% since. The American Banker index of 225 banks, on the other hand, fell only 5.3% during the same period.
"There is a little bit of a 'show me' mentality," and that could affect the stock's performance for several quarters, said Mark Fitzgibbon, co-director of Sandler O'Neill & Partners LP. Sandler advised North Fork on the deal.
Mr. Kanas says North Fork probably will not do another deal until "at least next year, if ever," because "the market is quite interested in seeing how this company operates when all the parts come together."
But there are other concerns. Fitch Inc. and Standard & Poor's put North Fork's debt rating on "negative" watch, citing the risk of a larger acquisition on the heels of the Trust Co. deal and the heavier integration work compared with North Fork's previous deals. Fitch has an A rating on North Fork's debt, while Standard & Poor's has it a notch lower at BBB-plus. S&P said it may become difficult for North Fork to maintain its efficiency ratio.
Moody's Investors Service is more upbeat. It rates North Fork A-1, and said in a report this month that the GreenPoint acquisition will improve its consumer banking business and complement its commercial banking expertise. Nonperformers may go up, but not the loan-loss ratio, the rating agency said.
Mr. Kanas offers: "We are not unaware that we need to go out and get [the critics] to understand that this is not true. One of the reasons why the mortgage component of a bank this size is interesting is because it is a counter-cyclical hedge to interest rates moving up or down."
He further argues that though investors may not have liked that mortgages made up 60% of GreenPoint's pretax earnings, the business will be about 20% of the combined North Fork. "The profitability from the bank side will dwarf the lost revenues from the mortgage company," he said.
That GreenPoint will remain a separate brand is another of Mr. Kanas' selling points. The thrift will operate separately and continue to focus on retail banking while North Fork concentrates on commercial customers. "We think that it is profitable, and in fact logical, to deliver different products to different people through different channels," Mr. Kanas says.
North Fork, which Mr. Kanas said only in recent years paid more attention to branding, already operates under two names - North Fork and Superior Savings of New England, a subsidiary it created in 1997 through acquisitions of Branford Savings Bank of Branford, Conn.
Employee relations are another priority for the CEO, who spends every Friday afternoon at the company's operation center chatting up the technology staff and mingling "with the mailroom guys." He has had similar get-togethers in the last few months with the rank and file at Trust Co. and GreenPoint, hoping to put them at ease about the mergers.
Working under Mr. Kanas may not be a walk in the park, according to analysts. "His culture is much more akin to a Wall Street culture," says Sandler O'Neill's Mr. Fitzgibbon. "He drives his people very hard."
Mr. Kanas says it works. "I firmly believe that the managers of companies like this work as hard as they can to preserve that relationship between the company and the employees. Once that turns - once employees feel that there is a disconnect between them and the company - you should sell."
This article is one in an occasional series on the strategies of banking's midtier institutions. As always, American Banker welcomes your feedback. Go to www.americanbanker.com, and click "contact us" for more information."
This article is one in an occasional series on the strategies of banking's midtier institutions. As always, American Banker welcomes your feedback. Go to "
