Turnaround complete, Bank Leumi seeks U.S. expansion

Avner Mendelson has made progress over his five years running Bank Leumi USA.

When Mendelson became the bank's CEO in September 2013, it was suffering from stagnation. The next year, the bank absorbed a $50 million loss after its parent, Leumi Group in Israel, agreed to pay a steep penalty after admitting to helping U.S. clients evade taxes.

The new leader had a straightforward directive from day one: Move beyond past mistakes and build a well-run bank with a clear identity. Selling the bank was not among the options.

“I got a very clear mandate at the time from the parent company and shareholders in Israel with a very long-term view,” Mendelson said in an interview.

Since then, he has slowly transformed Bank Leumi and made it more profitable. The $7 billion-asset bank is booking more loans after years of stagnant growth, and it recently gained two major U.S. investors to help it expand even more.

AB-061418-LEUMI.jpeg

The bank, which earned $17 million in the first quarter, is on pace to earn at least $70 million this year, Mendelson said. That compared to $37 million last year and $11 million in 2013, according to the Federal Deposit Insurance Corp.

Much of the progress has come from cross selling products and services to existing customers, Mendelson said. Total loans rose 11% in 2017 from a year earlier, to nearly $5 billion.

Such progress required years of groundwork, including an adjusted organizational structure, new leadership and directors and improved technology.

The effort follows a reliable playbook for rebuilding a bank, industry observers said.

The first step of an effective turnaround should involve mapping out a plan, said J. Michael Feeks, a principal at Bank Experts Group. It’s also important to have employees and directors who support the CEO's vision, he added.

“If they're not willing to move forward, they just have to get out of the way,” Feeks said.

Headcount at Bank Leumi USA, which has operations in California, Florida, Illinois and New York, has increased slightly during Mendelson's tenure as CEO, with 452 employees at March 31, according to the FDIC.

Many of Bank Leumi's additions have been high-level staff, which Mendelson said was necessary to build a high-performing organization. The bank in 2015 hired a new chief financial officer and appointed Charles Johnston, a former Morgan Stanley executive, as its chairman. Three new directors also joined the board that year.

The bank last year hired a chief operations and technology officer from Fiserv and a chief information security officer from Sumitomo Mitsui Banking Corp.

Mendelson was able to recruit new leaders by casting Bank Leumi as a chance to build something fresh and new, even though it had been operating in the United States since the 1960s.

“A lot of senior talent came to us from large institutions," Mendelson said. "The reason they came was because they saw an opportunity to actually shape an organization and almost be in a startup environment within the bank world.”

Banks with national scale should look for directors with specialized skills, as opposed to community ties, said David Baris, a lawyer and president of the American Association of Bank Directors.

It’s also important to set targets in a transformation project, and then update employees and stakeholders on the progress being made, Feeks said, adding that management and directors should not be afraid to make bold changes quickly.

“When you're in the middle of a turnaround, that’s no place for weak team members, micromanagement or bureaucratic processes — you have to put all of that stuff aside and concentrate on making sure plans actually happen,” Feeks said.

One of Bank Leumi's big moves was an ambitious effort to modernize technology to become more competitive. The bank has invested $45 million to revamp its core and customer-facing technology. It upgraded everything from desktop computers to its mobile banking platform.

“It was really a bold move by our shareholders and board to approve that dramatic investment, but frankly there was no way around that after decades of stalling any significant investment in that area,” Mendelson said.

Bank Leumi is now in a position to ramp up its operations even more.

The bank sold a 15% stake in itself earlier this year to MSD Capital, which manages the assets of Dell Technologies founder Michael Dell, and Endicott Management. Wayne Goldstein, an Endicott principal, is expected to join the boards of Bank Leumi and its parent.

“We felt that bringing such partners can help us maximize our optionality going forward and make sure that we are making the right decisions and finding the right opportunities,” which could include acquisitions, Mendelson said. The bank could eventually bring in more capital through an initial public offering.

Mendelson said he would like to see the bank reach $15 billion in assets.

“We do believe scale serves as an advantage at our size,” Mendelson said.

For now, Mendelson said the bank is well positioned to bring in business from private banking and commercial lending — especially from the technology sector.

Mendelson is interested in gaining more density in existing markets, rather than entering new cities. Bank Leumi has hundreds of technology clients in Silicon Valley and New York, he said. He hopes to grow that business.

“We are now expanding and building domestic capabilities," Mendelson said. "Technology is definitely a big sector for us.”

For reprint and licensing requests for this article, click here.
C-suite Capital IPOs Growth strategies Recruiting New York
MORE FROM AMERICAN BANKER