Webster Financial Corp., with help from a deep-pocketed benefactor, is going after commercial lending with guns blazing, announcing an anticipated $400 million expansion in commercial loans and touting its new business-friendly Boston branch.
In some respects, the $17.5 billion, Waterbury, Conn.-based Webster is in step with a larger pack of New England’s community and regional banks, many of which have discussed intentions to beef up commercial loan volume as megabanks lick their wounds.
Webster, however, has a marked advantage over some of its competitors, in the form of backing from $25 billion New York equity investment firm Warburg Pincus, which put $115 million into the bank last autumn. The investment gives Warburg a 15.2 percent share of outstanding common stock and a seat on Webster’s board.
Webster representatives say the investment has already helped push forward long-held plans for strong commercial lending expansion. With Warburg’s vote on the board, moreover, Webster can tap the expertise of the global investment giant, which has its hands in companies as far-flung as Australian waste management systems, Chinese juice makers and Indian health care technologies.
The bank sought Warburg’s money to boost its Tier 1 capital ratio – a major indicator of financial soundness. Webster’s plan was to sell 15.2 percent of its common stock up front, but the bank’s rules prevented any single investor from holding more than 10 percent.
To execute its plans quickly, Webster sold Warburg a mix of common and preferred stock, which would all revert to common stock as soon as shareholders approved the idea.
The bank spent the next few months garnering shareholder support for the idea, and got approval in December.
Opening The Door
In filings, Webster acknowledged the move may have weakened the bank’s resistance to possible investor takeover by allowing Warburg, and any other investor, to own more than 10 percent of common stock.
Webster says the bank is indeed influenced by Warburg’s presence on the board, but Joe Savage, executive vice president for commercial lending, said Warburg’s is one vote among many on the board.
Analysts say Warburg’s new relationship with Webster does give the company plenty of clout with the bank, but also said the bank’s move into commercial lending is not unusual.
Keith Reagan, a managing director with Newburyport’s Darling Consulting Group, said plenty of community and regional banks are talking up commercial lending right now.
Warburg’s status makes it influential, although Reagan said he had no direct knowledge of whether it was steering the ship or just pumping more fuel in, so to speak. Still, money talks.
“I’ve seen a large investor clearly influence the strategic direction of an institution,” he said.
The investor only has a certain number of votes on the board, of course, but money – or even just a board member’s strong personality – can be a strong influence, according to Reagan.
Warburg Pincus spokespeople declined comment, directing all media questions to Webster.
Past Is Not Prologue?
Webster’s rapid commercial movement is in marked contrast to the recent past: In 2009, the bank’s commercial lending portfolio slumped after years of steady gains, and the bank has eliminated 440 jobs in the past two years.
At the end of 2009, commercial lending stood at $2.93 billion, down 18 percent from its year-end 2008 volume of $3.59 billion. The bank posted a $13.7 million net loss in the fourth quarter of last year.
But with the New Year came news of expansion: On Jan. 5, the bank announced it intended to write $850 million in new business loans in 2010, a $400 million increase over last year. A little more than a week later, it announced it would create 150 new jobs.
That includes a mix of positions, Savage said, including entry-level and administrative personnel. He indicated that the bank wasn’t rehiring former employees who’d left the bank in its recent job-trimmings, as it was interested in growing other departments and shifting to a new focus.
