For most of its 30-year history, Western Alliance Bancorp. has stayed under the radar.
But that all changed during the banking crisis of March 2023, when the Phoenix-based regional bank's survival appeared to be in question for several nail-biting days.
Western Alliance's asset mix and characteristics were fundamentally different from those of Silicon Valley Bank and others that collapsed last spring. But some investors were worried that the $70 billion-asset bank's higher-than-average exposure to Bay Area technology firms put it dangerously close to succumbing to the same fate as SVB. Those fears invited market contagion.
Within hours of news breaking about the failure of SVB on March 10, 2023 — followed by Signature Bank on March 12 — word spread on social media, digital news and word-of-mouth that Western Alliance was also in trouble, triggering a sudden outflow of funds and causing the bank's stock price to plummet.
Over several dramatic days and nights, Western Alliance's leaders raced to reverse the damage, stabilize the bank's deposit losses and bolster its stock price. The experience left the bank's seasoned management team with frayed nerves and invaluable new lessons.
"With SVB, we saw what a modern bank run looked like with the power of social media, versus what happened to Washington Mutual in 2007 that took weeks. This time, over 48 hours, cash was flying out of treasury management systems that are so attuned to real-time transactions that you just point and click, and the money's gone," said Ken Vecchione, Western Alliance's longtime CEO.
The crisis has permanently sped up Western Alliance's ability to coordinate strategies across departments and make decisions. "We weren't ready for the social media threats against us, and we quickly got ahead of things, listening and ready to react very quickly with facts," Vecchione said.
At the peak of the banking crisis on March 13, Western Alliance produced its fastest-ever 8-K in just a few hours. The filing reassured investors and customers that the deposit outflows had been "moderate" so far, and detailed the firm's deep cash reserves.
The move marked a shift in the firm's willingness to churn out press releases and statements on a dime, versus its previous, more measured approach. The bank initiated aggressive surveillance of social media so executives could react to rumors with fact-based documents.
Western Alliance also took steps to further enhance its existing "flat" organizational structure, which played a key role in its survival, according to Vecchione.
"All of our 3,200 employees have met top management and they know who to ask and what to do. We don't have any layers preventing people from taking action when needed and there is complete transparency, so we can move in lockstep in any crisis," he said.
Another alarm came for Western Alliance in early May after San Francisco-based First Republic Bank was taken over by regulators. A news report hit the headlines on May 4 indicating that Western Alliance was up for sale, causing the bank's stock price to tumble once again. But now the team was ready. "We never, ever discussed putting the bank up for sale.
But by this time, we had learned how to react incredibly fast and factually to every rumor. So that crisis went away fast," Vecchione said.
Ultimately Western Alliance lost $6 billion of deposits in the first quarter of 2023, but because of swift actions taken in the wake of the crisis, the bank began regaining its lost deposits within weeks. By the end of 2023, the bank had more deposits than at the end of 2022, and its loan growth was back on track, Vecchione said.
Here's an insider look into how the bank survived the crisis.
Storm clouds
Western Alliance's management team didn't necessarily foresee the 2023 banking crisis. But in the months leading up to it, Vecchione and Chief Financial Officer Dale Gibbons noticed some troubling financial trends that helped the bank prepare for what was ultimately to come.
At the time, every division at Western Alliance was thriving. In fact, the institution was listed as American Banker's top-performing bank with more than $50 billion of assets for 2021 and 2022. That ranking is determined by averaging the banks' last three years of return on average equity.
But during the second half of 2022, Western Alliance's price-to-earnings ratio was lower than other regional banks, according to Vecchione.
"Our price-earnings ratio was below banks like Signature Bank, SVB and [First Republic Bank] but we were outperforming them. We had a higher net interest margin, a higher return on equity and higher return on average assets, but we weren't getting paid for the growth we were showing," he said.
In November 2022, Gibbons and Vecchione headed to a meeting of institutional investors in Boston hoping to feel out where the bank stood in relation to competitors.
"At a dinner in Boston a bunch of analysts and institutional investors came together and peppered us with questions. Then we asked them, 'What's the one bank stock you wouldn't own?'" Gibbons said. According to him, everyone at the table said the same thing: Silicon Valley Bank.
"It was clear that if you looked at SVB's balance sheet, you could see they'd need to sell their held-to-maturity portfolio at a huge loss if they needed to raise liquidity," Vecchione said, noting that at the end of 2022, SVB data showed its held-to-maturity portfolio represented over 40% of its total assets, with an unrealized loss exceeding its capital.
At that same time, Western Alliance's held-to-maturity portfolio was less than 2% of its assets, he added.
SVB's situation underscored potential danger in the financial services ecosystem. "Any time you start seeing a potential risk like this, even with one bank, it overlays the possibility that something could happen across the industry," Gibbons said.
The fact that the U.S. was in the middle of a steep interest-rate rise created further uncertainty. Western Alliance now felt an urgency to rapidly build up deposits, and it already had some specific levers to anchor them to the bank.
"SVB had the unique skill set to underwrite tech loans, but they seemed to have the mistaken belief that because they were the banking gorilla in the tech space that all of these companies that had zero-interest-bearing accounts with them had to keep those funds at SVB indefinitely," Gibbons said.
"That was obviously not true," he added.
Pivoting
Once back in Arizona, the executives announced plans to cool Western Alliance's growth and pushed every division at the bank to raise capital and liquidity levels. "At our internal management conference in early 2023 we urged departments to use every tool to grow deposits, using technology and APIs and any other creative ideas," Vecchione said.
Western Alliance also had another advantage heading into the turmoil of 2023 — it was far more diversified than SVB and the other banks that failed.
The company has several regional bank brands that operate under the Western Alliance charter. They include San Jose-based Bridge Bank, which has a presence in tech hubs across the country; San Diego's Torrey Pines Bank; Bank of Nevada; another Nevada-based operation called First Independent Bank; and Alliance Bank of Arizona.
Additionally, Vecchione's experience in developing payments businesses helped to deepen the roots of the bank's deposits. When he rejoined Western Alliance in 2017 after a stint working at a specialty finance company, he encouraged the company's various banking brands to develop "narrow but deep" specialties that often include recurring payments.
One example is the banking services Western Alliance provides to homeowners associations across the U.S., enabling these organizations to collect monthly payments from millions of homeowners. Western Alliance has $8 billion in deposits associated with HOAs, and the business is growing at more than 10% annually, said Steve Curley, chief banking officer for national business lines and president of its HOA-focused Alliance Association Bank.
"HOAs are the dominant form of housing in the southern part of the U.S., which is growing fastest, and we have a dominant position providing banking services to this niche," he said.
Western Alliance is also seeing strong growth with its new settlement services business, which enables law firms and claims administrators to manage payouts in class action, mass tort and bankruptcy settlements through its Digital Disbursements subsidiary. The bank also has a growing business escrow product offering, Curley said.
"These services anchor customers to the bank, and they were just beginning to take off in early 2023," Vecchione said.
The war room
Two days before SVB's March 10 failure following a catastrophic run on the bank, Vecchione knew things were about to get bad. On his way to get a root canal in the late afternoon of March 8, Vecchione received a worrisome call about SVB's crumbling balance sheet from an investment banker.
As the dentist prepared to inject Novocaine near his tooth, Vecchione offered a dark quip: "Don't worry, I'm already numb, and I'm going to be numb for the next few weeks."
A series of high-velocity meetings and developments began later that evening and continued for the next three weeks, centered within the 14th-floor boardroom at Western Alliance's headquarters in downtown Phoenix.
As the anchor tenant in the 27-floor CityScape building, the bank's spacious meeting room looks out on Arizona's scenic South Mountain. The building is a stone's throw from the city's sprawling convention center and near the hulking Chase Field baseball stadium where the Arizona Diamondbacks play.
Every day at 6 a.m. throughout March, top executives, who had little sleep, reported for duty to prepare for the day ahead. They convened again at 4 p.m. to strategize for the next day.
"The rules were that any client that wanted their money would get it, and we were not going to stop our business. Any loans scheduled to close that week would go forward," Vecchione said.
Vecchione was never off duty during the first half of 2023. At home he put in about five miles a day pacing while talking on the phone, powered by Coca-Cola, he said. Managers kept employees and customers apprised of every development and announcement across the bank's 39 branches, based mostly in Arizona, California and Nevada, plus an office in Manhattan and non-branch offices in cities that include Dallas, Atlanta and Boston.
"In between meetings — even if it was 8 p.m. at night — we ran the bank as usual, and our customers were never inconvenienced," Vecchione said.
Despite the concern in the conference room, Western Alliance leaders were never worried about the bank's core health due to its solid capital structure, deep connections to borrowers in niches like media and entertainment, biotech, homeowners associations and hotel finance, as well as various granular payments-based businesses, said Tim Bruckner, the bank's chief banking officer for regions and its former chief credit officer.
"It wasn't fair to lump Western Alliance in with SVB last year because we're a multi-line diversified bank. We've always had the option to dial up or down any one of the areas where we invest. When venture capital started drying up like it did in 2021, we pulled back," Bruckner said.
To be sure, Western Alliance had significant exposure to the tech sector — 13% of its deposits were tied to technology firms through its Bridge Bank division in March 2023. But it was essential to note that 40% of those deposit accounts were tied to the bank by loans, meaning borrowers' interest rates would rise if they moved their deposits out of the bank.
"Many of our deposits were firmly anchored," Bruckner said.
The diverse industries represented among customers and the various proactive steps the bank took in 2022 to build liquidity were key to the bank's survival in 2023, said David Smith, an analyst at Autonomous Research. Additionally, Western Alliance's decision to proactively borrow $25 billion from the Federal Reserve also set it apart from the banks that failed that month, according to Smith.
"The fact that management was thinking about the capital it might need ahead of time, and it was top of mind, made it much easier for them to act decisively. In contrast, SVB and Signature Bank seemed kind of flat-footed when the crunch came, and they weren't able to fully utilize some of the same capital facilities like the Fed's discount window or the Federal Home Loan bank," Smith said.
As the days wore on and investors and customers were increasingly reassured of Western Alliance's stability despite the ongoing banking crisis, executives breathed a sigh of relief.
"After about three weeks, the pace of pre-dawn meetings relented," Curley said.
Curley was rarely around the house during March and April, and he told his family why. All three of his daughters had recently downloaded a stock-tracking app to their phones to show their support for his hard work.
But the relief was relatively short lived.
One day in May, Curley was just back from walking his dog — a practice he had only recently resumed — when his oldest daughter, 17, popped her head around the corner while he was shaving to ask: "Hey Dad, why is the bank's stock down 40%?"
His stomach dropped to the floor and he raced to the war room downtown.
But this time the damage caused by a specious rumor was quickly contained.
"We're not the bank we were before the crisis. We're more prepared and we can react as quickly as events unfold," Curley said.
