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Joe Montana, one of the greatest quarterbacks in the history of American football, has been with the same private bank since 1979 when he was drafted into the National Football League. But after more than 25 years, he is taking his business elsewhere.
“Being with a bank for that long . . . they should have known my profile upside down, yet when it came to having a transaction . . . it was like pulling teeth,” Montana says. “It’s sad when you have that type of relationship for so long.”
Enter Bippy Siegal, serial entrepreneur. “As the other banks fumble, we are able to pick up the ball,” says the 39-year-old founder and chairman of Modern Bank, a New York-based boutique private bank that opened a year ago. “We are proactive about making sure our customers are taken care of.”
Modern Bank is one of a growing number of small wealth managers that is snapping at the heels of the established private banks by emphasising advice and “traditional, old-world relationship banking” over products.
Siegal says he knew there was a business opportunity after surveying more than 50 people – their net worth ranging from $10m to in excess of $1bn – about their private banking experiences. “Of all the people we interviewed, there was only one happy client and the reason that person was happy was because he had huge unsecured lines of credit.”
Russ Alan Prince, president of Prince & Associates, a market research and consulting firm that works with the super-rich and their advisers, says Modern Bank is in a position to be “exceedingly profitable and exceedingly successful. It hinges on creating an open architecture, having the right people to interact with the clients, and getting the clients.”
Wooing customers is not easy: many wealthy individuals and families want the cachet of a famous private banking name and the assurance of a big financial institution that has been around for decades.
Still, Siegal and his team believe they can fill a niche by targeting entrepreneurs, professional athletes and entertainers.
It helps to have Montana, best known for making the San Francisco 49ers a dynasty in the 1980s and 1990s with four Super Bowl victories, on the team. Last year he joined Modern Bank as vice-chairman and is also an investor and client. “The biggest sell for me was my accountant is now a customer,” Montana says.
Leslie Bains, head of private banking, says Modern Bank is targeting clients with $5m to $150m in assets, an area she says is under-served. So far it has attracted 90 clients, with an average net worth of $75m to $85m. About a fifth of the clients have more than $500m of assets.
Anthony Burke, Modern Bank’s president and chief executive, says the bank’s small size – it has 45 employees – allows it to be nimble. “We can typically make [lending] decisions in 24-48 hours,” he says. “The management committee is up and down the hallway so we can move very rapidly.”
To maximise service, Modern Bank is intent on keeping its ratio of private banking advisers to clients at a maximum of 40 to one, which Bains says is below the industry average of about 75 to one. (Its current ratio is 20 to one.)
“You can’t get a high level of service when you overload the adviser,” she says. One concept that is working well is “bring the bank to the customer”.
“We have our service officers bringing cash to clients throughout Manhattan,” Siegal says. “People still use cash and have cash needs.”
He is quick to point out Modern Bank is not a consumer bank. “We don’t have 10,000 ATMs throughout America. We are putting our resources into great people and a great product mix as opposed to real estate and a bunch of branches around the country,” he says. “The whole concept was to build a home for high net worth individuals.”
That may sound simple, but launching a private bank is no small feat: success often rests on deep-pocketed, patient investors and an experienced management team. And, of course, on the rich getting richer.
When it came to raising capital, Siegal did not have to look far: many wealthy investors are drawn to the opportunity offered by so-called de novo banks – the name given to banks open less than five years. Siegal also has many business contacts dating back to his first start-up, Americash, an ATM network that American Express bought in 1998.
Aside from Montana, the bank’s backers include Millard Drexler, chairman and chief executive of J. Crew and Sanford Robertson, a partner at Francisco Partners and co-founder of the investment bank Robertson, Stephens & Company.
“There is a real need for the service that Modern Bank provides,” Robertson says. “Some of the larger banks do a good job – such as Northern Trust and US Trust – but there is real need for a Swiss-type boutique bank. I thought there was a niche in the market and I thought highly of Bippy. This is a combination of a bet on Bippy and a bet on the need in the market for personalised service.”
In December 2005, Siegal’s investor group bought Excel Bank, with assets of $208.5m and equity of $28.5m, and renamed it Modern Bank.
“When you have something started by rich people, who are connected to rich people, who are also connected to advisers out there such as attorneys, they are in a position to become very successful,” Prince says.
Bruce Holley, a New York-based partner with the Boston Consulting Group and head of the wealth management practice, says there is room for small private banks because the market is so fragmented.
“It’s great to be niche player if you are serving the niche in the right way,” he says. “It’s not a question of offering ‘me too’ strategies, it is about flawless, high-quality execution and recruiting quality relationship managers who will attract and retain clients.”
As Bains puts it: “Modern Bank has no young MBAs who are learning on other people’s money.”
This philosophy extends to the management bench, which includes Bains, who has more than 25 years of experience in the private banking industry, most recently as senior executive vice-president at HSBC North America, and Burke, former chief operating officer of New York Community Bancorp.
“I said I would join if I could also be an investor,” says Burke. “From an investor’s perspective that ability to take a private bank to the public markets at some point in its history can be a powerful incentive.”
For now, however, no one is in a rush. “In any start-up, your first objective is building a great company and providing great service to your clients and once you achieve that then you start thinking about how do we get a return on this investment,” says David House, retired group president of American Express and now a Modern Bank director, client and investor.
The short-term goal is for Modern Bank to have 250 clients and $1bn of assets on the balance sheet (up from $301m) in three years, and for its sister company, Modern Asset Management, to have $2bn in assets under management, up from $358m.
One of the hurdles Modern Bank faces is attaining scale: the bigger the balance sheet the bigger the loans. “The biggest challenge . . . is really our size, because here, like in any other banking market, you really are a function of your capital, the size of the loans you can make is a percentage of the capital you have,” says Burke.
Scale is what will probably enable Modern Bank’s investors to pursue a sale to a strategic buyer or an initial public offering – the liquidity event that private investors most prize. But with size comes another challenge: maintaining the service level by which Modern Bank differentiates itself.