Lifetime Achievement Honoree: TCF's William Cooper

From William Cooper's top-floor office at TCF Financial, he can see Lake Minnetonka, five miles wide and emerald blue. Small yachts line the shore at a nearby harbor.

It's a striking view — and a fitting one for Cooper, the longtime Wayzata, Minn., company's chairman and chief executive.

Cooper, 72, likens the job of a CEO to that of a ship's captain. Some people are up to the task when the water is calm and the ship can sail smoothly, Cooper says as he leans back in his chair and props his feet up on a nearby ottoman.

"But when the hurricane hits, everybody looks toward the CEO, and they want to see someone steering the ship, smoking a cigar and telling people what to do," he says in his characteristic gruff monotone. "You can't be afraid."

Experience has shown Cooper is that kind of captain.

When he retires as CEO in January, he will leave a company that he steered through two crises, built into a regional powerhouse and reinvented to fit the times more than once.

Cooper joined TCF in 1985, as it was buckling under the weight of risky loans and bad arbitrages. Within months, he raised capital, addressed the problem credits and carved out a niche of serving working-class customers.

That would be achievement enough for most. He even retired once before, in 2006, but two years later accepted the call to return on the verge of another dark hour and led the company through the mortgage bust and subsequent financial crisis. After the housing markets collapsed, he expanded TCF's dealings to include specialty lending on a national scale.

TCF, during Cooper's second watch, also sued federal regulators in an attempt to block proposed caps on debit card interchange fees that threatened a key element of the company's business model. He called it an effort to "draw a line in the sand" to stop governmental overreach. TCF later withdrew the suit, but Cooper says it played an important role in shaping the final rule.

In recognition of his stewardship of TCF through two of banking's roughest periods in recent decades, and his fierce advocacy on behalf of the industry, Cooper has been selected by American Banker as its lifetime achievement honoree.

Cooper relied on his gut to guide decision-making, often acting quickly in times of crisis while occasionally taking big risks that look prudent in hindsight.

"He has great instincts for the business," says Craig Dahl, TCF's president and Cooper's successor in waiting. Such know-how is important since many bold moves aren't "supported totally by your financial case."

Dahl points to Cooper's decisions in 2011 to buy an auto lender and restructure TCF's balance sheet. Those changes led to a rare quarterly loss, but they also gave the company a leg up in the now-booming market for specialty finance.

Cooper has frequently unearthed market niches "before they were in vogue," says Chris McGratty, an analyst at Keefe, Bruyette, & Woods.

Solid Performer

Cooper will leave the $20 billion-asset TCF at a time when the company, and particularly its loan book, is outperforming its rivals.

TCF's expansion into specialty finance — known for producing higher yields and having shorter durations — has been a boon as interest rates hover at historic lows. The company's net interest margin in the third quarter was 4.4%, well above the industry's 3.05% average.

Total loans rose by 5% in the third quarter compared with a year earlier, mainly from double-digit growth in auto and inventory finance.

The strategy has helped TCF offset declining fees that reflect broad changes in regulation and technology.

Still, TCF's ratio of total revenue to assets — it is 6.4%, compared with 3.9% at the average institution its size — "leaves its competitors in the dust," says Steven Alexopolous, an analyst at JPMorgan Securities.

One of TCF's other strengths has been its large base of low-cost deposits.

TCF has a "very granular" funding model made up of small accounts from "blue-collar workers," McGratty says. Such customers are less likely to shop around for higher-yielding deposits when interest rates rise, he adds.

That assessment is music to Cooper's ears.

TCF's retail banking model is designed to attract the "Joe Lunch-Bucket" crowd, according to Cooper. "If you get a million and a half people who each keep a thousand bucks in the bank, that's a lot of money," he says.

When Cooper took over TCF, he focused on attracting working-class customers as a way to build the bank's deposit base. He made branch services more convenient and, in some ways, cheaper.

TCF pioneered free checking when it introduced the service in 1986. The company opened its branches seven days per week, and it aggressively placed branches inside grocery stores.

"We became the Walmart of banking when everyone else was Saks," Cooper boasts. "And you know what? Walmart makes more money."

Yet some critics would say that in the process TCF became heavily reliant on overdraft fees from that clientele and made itself a target for recent scrutiny by consumer-protection regulators.

A Tough Guy

Over three decades at TCF, Cooper has earned a well-deserved reputation as gritty.

Those who know Cooper describe him as "old school" and "demanding," though they also say that he is fair, protective and, above all, kind during a crisis.

The tough-guy image reflects a prior career.

Before becoming a banker, Cooper was a beat cop in Detroit, joining the city's police force in 1963, at the height of the civil rights movement. That was also the year that Martin Luther King Jr. led a peaceful march of more than 100,000 people through Detroit. Four years later, the city was the site one of the most deadly riots in U.S. history.

But Cooper downplayed any clichéd notions about those years.

He signed up for the police force as a way to pay for college since his family did not have much money. His father died when he was teenager, and his mother worked as a clerk at the New York Central Railroad.

As a cop, Cooper worked overnight and weekend shifts so he could take classes during the day.

"There were two men in a [patrol] car, and after around 3 o'clock in the morning there wasn't much going on," Cooper recalls. "We would just go park somewhere, and my partner would go to sleep and I'd do my homework."

After graduating from Wayne State University in 1967 with degrees in economics and accounting, Cooper took a job with the accounting firm Touche Ross, a predecessor of Deloitte.

In 1971, he was assigned to work as an auditor for the then Michigan National Bank in Detroit.

"The way that works in public accounting is you then become an expert," Cooper says with pronounced sarcasm.

Cooper met his mentor at Michigan National — a banker who, years later, would make national headlines for battling with federal regulators.

Bud Stoddard took over as the bank's chairman in 1971 after the death of his father, who had founded it 30 years earlier. Stoddard put Cooper on the fast track to the C-suite, teaching his protégé the business of retail banking, including the benefit of luring in lots of customers with small accounts.

"I learned that process and those philosophies from him, and he learned it from his father," Cooper says.

Shortly after Stoddard formed a holding company in 1972, he hired Cooper as its controller. "I got a chance to get involved in banking at a fairly high level at a young age," Cooper recalls.

Creating a holding company was Cooper's idea.

Michigan National had been operating several banks that were capitalized by profit-sharing trusts. It was an "awkward" structure, Cooper says, adding that the model had its roots in a state law that placed limits on branching.

One evening after work, Cooper struck up a conversation with Stoddard where he suggested converting the bank to a stock-owned holding company — a structure that Michigan first allowed in 1971. Stoddard liked the idea and tapped Cooper to work on it.

Cooper left Michigan National in 1978 for Huntington Bank in Columbus, Ohio, where he went on to serve as president. He also later served as president of American Savings and Loan Association in Miami.

Stoddard, meanwhile, left Michigan National under a cloud of controversy. He stepped down in 1984, at the board's request. Four years later, a U.S. district court found Stoddard guilty of charges that he misapplied bank funds. The conviction, along with a regulatory ban, was later overturned.

In the mid-1990s, Stoddard filed a lawsuit against the Federal Deposit Insurance Corp. for denying his application for a de novo bank. He lost that case in federal court in late 1996.

Change Agent

When TCF — then known as Twin City Federal — hired Cooper in 1985, it was on the brink of failure and in need a CEO with a fighting spirit.

Some accounts say that it was Harry Davis, a prominent community activist in Minneapolis, who cast the deciding vote to hire Cooper.

"It took a guy like Coop, because he knew no fear — but also took no prisoners," says Greg Pulles, who served as TCF's general counsel from 1985 until 2011.

TCF was a thrift at a time when more than 560 of its peers failed during the savings-and-loan crisis.

Turning around the bank was an uphill battle.

TCF was in desperate need of capital. It had a negative equity capital when Cooper joined, but was able to count goodwill as an asset under accounting rules.

Cooper took the company public in 1986, and created a holding-company structure. The IPO raised $80 million, or enough capital to bring the bank's worth up to zero.

TCF's credit quality was also deteriorating under a pile of bad loans. Most of the loans — used to fund risky condo conversions, hotels and rack tracks — were originated by a subsidiary in New York.

The unit had also built up a $3 billion portfolio of bad arbitrages after buying mortgage-backed securities, loans and interest rate swaps — a new type of derivative at the time — from several investment brokerages. The portfolio included about $425 million in swaps that had high rates and long maturity schedules.

"I mean, here's a bunch of Minnesota hicks going to New York, and they just got their [backsides] handed to them," Cooper says of the group behind the mess.

TCF shut down its New York office in 1987. It sold the bad arbitrages the Friday before the infamous "Black Monday" crash of Oct. 19. Had TCF waited a day longer, the sale could have been jeopardized — and would have likely sunk the company.

"That was luck," Cooper says. "But we did it and got it done."

Saving a failing bank allowed Cooper to build a new one of his own.

He made a series of changes, such as offering free checking, to entice a large base of working-class customers into its branches. Years later, he converted TCF to a national-bank charter to make it a more profitable commercial bank.

"TCF was like a bumble bee — it couldn't fly but didn't know it yet," Cooper says.

Pulling off all of those changes at around the same time was "nothing short of a miracle," Pulles says.

Cooper was not one for "paralysis by analysis," Pulles adds. "He knew what needed to be done."

Industry Advocate

Cooper's legacy — like his mentor's — will be defined partly by a high-profile battle with federal regulators.

TCF in 2010 filed a lawsuit against the Federal Reserve Board for imposing caps on debit card transaction fees. The caps were mandated by the Dodd-Frank Act in the wake of the financial crisis. TCF argued that the caps amounted to an illegal effort by the government to fix the price of a commercial product.

The lawsuit put TCF in the national spotlight. It also gave Cooper — a former chairman of Minnesota's Republican Party — a reputation as an anti-regulatory activist.

"It made me seem like a maverick in the public eye, but I wasn't interested in that," Cooper says.

Rather, the cap posed a serious risk to TCF's business model.

The company, which started offering customers free debit cards in the mid-1990s, quickly became one of the industry's top card issuers. The fees, which TCF charged to retailers, quickly grew into a key revenue source.

When TCF filed its lawsuit, it was the 12th-largest issuer of Visa debit cards. TCF claimed in its lawsuit that its annual interchange revenue would fall from $102 million to about $20 million.

The company earned $51 million in card revenue last year.

"It was risky to do," Cooper admits. "You don't want to sue your regulator."

Looking back, Cooper says it sparked a conversation in the industry, and it pushed regulators to write the rule carefully. The Fed set a cap of 21 cents; it had initially proposed 12 cents.

TCF dropped the lawsuit 2011, shortly after the Fed issued its final rule.

Cooper "sued the government and got a concession," McGratty says, adding that it "had a big impact" on the industry.

Second Act

While Cooper was battling regulators in the courtroom, he was also well on his way toward reinventing TCF a second time.

Cooper, who had remained chairman after retiring in 2006 as CEO, says he came back at the board's request in 2008. Earnings at the bank had declined amid growing loan losses, as the subprime mortgage crisis began to unfold.

Lynn Nagorske, who had served in as CEO during the interim years, retired as part of the executive shake-up. Nagorske had joined TCF in 1986 as a senior vice president and controller; he died of cancer in 2013.

Cooper quickly refocused TCF's balance sheet on commercial loans and leases, and began lending on a national scale. Doing so allowed TCF to compete with bigger banks that had encroached into the company's traditional markets.

Lending to specialty industries provided TCF with new sources of fees, including selling auto loans in the secondary market.

TCF grew its auto book by nearly 40% in the third quarter from a year earlier, to $2.4 billion. Inventory finance jumped 17%, to $2.2 billion. Consumer mortgages, on the other hand, have fallen steadily as a portion of total loans.

"They're better businesses," Cooper says of the new and expanded business lines, though he notes that they require higher levels of expertise. "What you get paid for them is what you earn."

There were other run-ins with regulators in his return stint besides the interchange-fee fight. In January 2013, TCF agreed to pay $10 million to settle an investigation into the bank's anti-money-laundering procedures. Later that year, the Office of the Comptroller of the Currency released TCF from a enforcement order, first issued in 2010, related to its monitoring of suspicious transactions.

Uncertain Future

After he retires, Cooper plans to step on a small plane that will take him around the world in a month. He'll travel to Australia, Bali, India and several other countries.

After that, he may buy a condo in Colorado, now that he has time to ski, hike and spend more time outdoors.

"I'm going to have fun now," Cooper says. "I'm going to spend the money I saved."

Cooper also plans to remain active in a nonprofit charter school network called Friends of Education. It's a project that he's passionate about, having attended inner-city schools in Detroit before "catching a break" along the way.

Cooper leaves behind a bank that's in sound financial shape but also faces challenges in the years ahead.

TCF may soon face legal action over its overdraft policies. The Consumer Financial Protection Bureau notified the company in October that it may take action over its opt-in provisions.

The notice affirmed a longtime concern among investors — that TCF's reliance on overdrafts could make it a regulatory target. About one third of the company's noninterest income involves fees from deposit accounts.

The fee-heavy model has also contributed to low scores on consumer satisfaction surveys; TCF ranked last in J.D. Power's 2015 Retail Banking Satisfaction survey.

"You're not going to have free checking and no fees," says Richard Painter, a corporate law professor at the University of Minnesota.

TCF also faces a challenge as it looks to control expenses, analysts say. The company's 71% efficiency ratio is higher than the industry average of roughly 60%. And, after failing to get shareholders' blessing for its last two say-on-pay votes, TCF may face more scrutiny on executive compensation.

Cooper, who will remain chairman until 2017, has offered some advice to Dahl on how to deal with any challenges he'll face as CEO.

Being a CEO is the most fun you'll ever have, Cooper told Dahl before quickly cautioning that the ship's captain is all alone when ultimately making decisions.

"You don't close the door and get afraid," Cooper says. "You've got to do the right thing."