After years as Sovereign Bank’s top executive in Rhode Island, Steven Issa is starting over.
Instead of running a unit that has nearly three dozen branches, hundreds of employees and almost $2 billion in deposits, Issa is busy these days picking out furniture for his new sixth-floor office in the Textron Building in Providence and meeting with job candidates.
Issa has been tapped by Troy, Mich.-based Flagstar Bancorp Inc. to spearhead the $13.6 billion bank’s foray into New England, first with lending offices in Providence, Boston and Hartford, then, if things go well, with bank branches.
It’s familiar territory for Issa, a Central Falls native who was hired to perform a similar task for Sovereign Bank in 1997, even before it acquired dozens of Rhode Island branches following the merger of Fleet Bank and Bank Boston.
As an advance man for Sovereign, Issa and his small staff had built a $300 million loan portfolio in New England before the bank had opened a branch.
“I didn’t even know how to spell Sovereign,” Issa said recently, recalling when he was first hired. “It was exciting … me and my cell phone. Now we want to do it again.”
Issa told Providence Business News that he left Sovereign on his own in November, after he didn’t agree with a shift in the bank’s New England operations.
“They had a reorganization that was more centralized into Boston,” Issa explained. “Basically, I wanted to do something new and exciting, so we parted ways very amicably.”
In fact, earlier this month, Issa attended Sovereign Bank’s annual economic-outlook breakfast in Providence. In years past he had acted as emcee. This time, he reminisced with former colleagues.
“It was my decision to leave,” he said. “These are good people. We worked hard to build what we had at Sovereign, and we want to do some deals with them.”
The Flagstar job reunites Issa with Joseph P. Campanelli, the former CEO of Sovereign who was replaced in late 2008 as Spanish bank Banco Santander SA prepared to purchase Sovereign.
Campanelli is now chairman and CEO of Flagstar, parent of Flagstar Bank, which has 162 banking centers in Michigan, Indiana and Georgia and 27 home-loan centers in 13 states, including one in Warwick.
Why would a bank with a Midwest footprint take a leap into New England, where the population is stagnant, the recession has hammered businesses and many established banks complain loan demand has wilted?
“It’s a market we know and understand,” Campanelli told PBN. “We have a lot of relationships that go back over the last couple of decades.”
And New England’s economic climate is improving, the bankers said. “Rhode Island has had … challenges on the budgetary side, but we still like the underlying stability of employment, the business values,” Campanelli said. “We can see the region coming back, so it’s a nice diversification from Michigan. It’s a good balance.”
Flagstar isn’t deterred by a New England market that already is competitive, with a mix of national, regional and community banks. “Our money is the same color as everyone else’s,” Campanelli said.
If the bank can get a foothold here, it might look to open retail branches, although no decisions have been made.
“The first phase is to build out the commercial business, create a good solid revenue stream and customer base, and then we’ll evaluate the retail opportunity at a later date,” Campanelli said. “We’ll give it three months or so. I don’t want Steve to be distracted.”
Flagstar has had its share of problems on its home turf. Campanelli was brought in as the publicly traded bank grappled with a loan portfolio riddled with late payers and defaults.
In 2009, a private equity firm pumped $350 million into the bank in exchange for common stock. Then last year, it completed a $400 million public equity offering. Flagstar also has about $267 million in money from the U.S. Treasury’s Troubled Asset Relief Program, or TARP.
The stock price, meanwhile, tumbled from a high of $19.20 a share in May 2009 to $1.16 by November 2010. Early last week, Flagstar shares were trading at $1.75.
Campanelli said the bank needed the $1 billion in capital in a “de-risking strategy” that included selling about $500 million of its nonperforming loans to “cleanse the balance sheet.”
In part, that led to a $393.56 million net loss for 2010.
Campanelli called the push into New England “going on the offense” and said its timing was spurred in part by Issa’s departure from Sovereign.
“A few months earlier, we had been chatting,” Issa said. “I said maybe we’ll work together some day. And when I was able to basically terminate my employment with Sovereign, I called Joe, and he said the timing might be perfect, let’s get together.”
Issa took three months off to consider his options. He liked the thought of building a brand again that is relatively unknown in this region.
This time around, Issa said it will be different and, in some ways, easier.
“With online banking, remote check deposit, being able to make a deposit with your iPhone – with the technology we have and the platform we’ve built and are building, bricks and mortar are important, but I think not as important as it was 10, 20 years ago,” he said.
And Issa said Flagstar has already been fielding calls from prospects in the region. “We already have a robust pipeline,” he said.
Right now, Flagstar is renovating a 6,000-square-foot office in Providence’s Textron Building. Issa said he is close to finalizing leases in the Hartford area and in Boston, as well as space for a specialty lending unit in Foxboro.
Campenelli said Flagstar’s aim is to be a “super community bank.”
“We’re excited to meet the needs between a million-dollar loan and a $20 million loan, where a community bank may not have the capacity to deliver the cash-management products and the large credit numbers. And for a big bank, it might not be as high a priority,” he said.
“We believe our strategy [of moving into New England] is good timing,” Campanelli continued. “There has been a lot of deferred capital investment and deferred maintenance. People have downsized. There’s an uptick in the economy both locally and nationally. People are borrowing a little more; they’re feeling a little better. It’s an opportunity for all of us.”
How big of a part will New England play at Flagstar?
“We’ll get a piece of the pie,” Issa said. “We’re going to walk before we run. But we’ll be a bigger and bigger piece of Flagstar.” •
