Sovereign Bank has unveiled a five-year plan to increase shareholder value by 300 percent.
Sovereign Bank is trying to hit one out of the ballpark, hoping to fulfill the promise of success it made last year when it came to town. It can even claim home-field advantage through its retention of former Fleet New England employees.
The Kenmore Square branch of the $33 billion-asset bank spent this past Friday morning giving out Boston Red Sox T-shirts and memorabilia as well as providing a performance by a jazz band in celebration of the team’s home opener.
The move came a day after Sovereign announced the launch of a new ad campaign featuring the phrase, “That’s why we’re here.”
The campaign marks the first sigh of relief that bank executives have been able to make publicly since acquiring nearly 300 Fleet branches.
“A lot of people, when we first got going, said Sovereign would never get this off the ground – and if it did, it would probably lose most of its customers because the competition would just gobble it up. Just the opposite has been true,” said John P. Hamill, chairman and chief executive officer of Sovereign Bank New England.
Showing its confidence, Sovereign has unveiled a five-year plan to increase shareholder value by 300 percent on the front cover of its annual report. The announcement comes just a few months after a share sale to raise capital had analysts grumbling that perhaps the Philadelphia-based bank had bitten off more than it could chew. In fact, the bank has attracted new deposits and begun new fee-income producing products such as cash management as well. But Hamill credits the success to a decision made early in the acquisition process.
“Because we had 3,500 people who worked in New England [before the acquisition who the company retained], they really came through and delivered for the customer. Therefore we were able to retain the customers. Our loans have been growing around 11 percent a year,” he said.
According to the annual report, deposit fees totaled $91.3 million company wide compared to the 1999 total of $49.2 million.
The company’s goal of increasing shareholder earnings substantially is outlined in its five-point, five-year plan.
“We based it on the fact that we think our fees can grow about 15 percent on average per year. We’ve started a lot of new-fee income business since we’ve come to New England. Those are getting off the ground very well in cash management and capital markets, trade finance and our consumer businesses. That’s very important.”
Additionally, Hamill said he expects deposits to grow between 7 and 10 percent annually based on the success of the free checking product introduced in the New England market about a month ago, which has generated 20,000 new accounts to date.
‘Very Good Impact’
Company wide, the bank expects to garner 200,000 new checking accounts every year for the next several years. But considering that Citizens Bank and Eastern Bank have both initiated major ad campaigns, the fact that Bank North claims a top five market share in the state and a non-solicitation agreement with Fleet that runs out in October, is there room for that kind of sustained growth?
“It’s always the interesting question as to what the plan is vs. what happens. I guess what we’re seeing is, in terms of the free checking, neither Fleet nor Citizens offers this free checking account,” said Hamill.
“And in Massachusetts, the two banks we’re taking most of the customers from are Fleet and Citizens, so I think that people are voting with their feet in that regard. As far as Eastern’s concerned, obviously a good competitor, they have 40 branches and we have almost 300 branches in New England, 600 company-wide. So I think it’s a different size and different magnitude and different reach … Right now we’re encouraged by what we see, at least with the account openings,” he said.
Another point in the plan includes growing its loan business in New England. “We’ve been growing our corporate banking loans about 11 percent. So as we look forward over the next five years, we think 10 percent is a realistic number. We don’t want to reach for the sky here. We just want to do what we think is a reasonable increase each year,” he said.
Paying down about $1 billion in debt to reduce interest costs and maintaining a focus on sales, asset quality and customer service round out the plan.
Although the official launch of the ad campaign was last week, Sovereign began advertising its home equity product in newspapers at the end of March. “That’s a campaign that will go on over the next four or five months that we think will have a very good impact,” he said, adding that increased activity in applications were already being reported to him.
Part of the company’s confidence comes from its community-oriented commercial bank model which, in part, balances $22 billion in its loan portfolio among commercial, consumer and residential loans.
Commercial loans totaled $7.8 billion, or 36 percent of the portfolio. That’s up from $4 billion in 1999. Consumer loans totaled $6.1 billion in 2000, 28 percent of the total loan portfolio, up from $4.5 billion the year before. Total residential loans represented 36 percent of the portfolio with $8 billion, up from $5.7 billion in 1999.
Originations declined in 2000 to $2.3 billion in commercial loans from $3.2 billion the year before, not including the $3.1 billion in loans acquired in the New England acquisition. Sovereign attributes the decrease to reduced lending through its specialty lending group due to increased credit risk considerations.
