As Jay S. Sidhu takes the helm of a small bank in the Philadelphia suburbs, he aims to recreate some of what he achieved at Sovereign Bancorp Inc.
But the former chairman and chief executive of Sovereign said in an interview last week that he is adopting a different strategy for growth at the $265 million-asset New Century Bank in Phoenixville, Pa.
"This is going to be very much an organic growth strategy complemented with M&A," said Sidhu, who nonetheless expects to do at least two deals before taking the privately held New Century public in a year or two. "Sovereign's turned out to be more of an M&A strategy supplemented with organic growth. This is opposite from that."
Sidhu drew flak for his acquisitiveness as Sovereign, now part of Banco Santander SA, grew from an obscure $500 million-asset thrift in Wyomissing, Pa., to a $90 billion-asset regional powerhouse during his two decades there. He resigned under pressure from the board in late 2006, and he was under a noncompete agreement until January.
Several analysts who followed Sovereign said they are excited to see Sidhu back, though they are surprised he chose such a small bank.
"I guess it's going back to his roots in a way," said Richard D. Weiss, an analyst at Janney Montgomery Scott LLC. "He certainly knows the business, and he knows the market area, so why not? Jay likes to do deals, and there'll probably be a lot of opportunities for that."
Anthony Polini, an analyst at Raymond James Financial Inc., said he expects Sidhu to be successful in helping New Century grow, especially since his connections can help it attract business customers and capital.
"He did a lot of things right at Sovereign," Polini said. "He was very good at buying companies, building through acquisitions and increasing market share."
The 12-year-old New Century was looking to raise capital through a private placement, and as Sidhu considered whether to invest, he got to know Kenneth B. Mumma, the bank's founder, chairman and CEO.
About three weeks ago New Century added Sidhu to its board, and he began helping raise capital. By Thursday, when the bank announced Sidhu's selection as the new chairman and CEO, it had sold $13.6 million in common stock.
"So in two or three weeks we put all this together," Sidhu said. "Capital is not short for good opportunities."
Sidhu said he invested "a significant amount" himself but owns less than 10% of the bank.
"This is a friends-and-family circle of investments, and people who have expressed a tremendous amount of interest in investing if I'm involved." he said, living up to his brash reputation. "Very quickly, whatever we thought was needed, we got it."
Since leaving Sovereign, Sidhu has been looking to invest in banks. He created Sidhu Capital Partners, a private-equity firm targeting the banking industry, in September 2007. It has yet to strike a deal and is not involved with New Century.
New Century said the recent fundraising pushed its tangible common equity above 10%. Sidhu said that would allow the bank to absorb losses and begin making acquisitions quickly. He is already negotiating with potential sellers.
"In our preliminary conversations, I've had a tremendous amount of interest expressed to me," Sidhu said.
The plan is to make at least two deals and improve New Century's performance before it goes public, he said. "We're very hopeful within the next year or two we will be a public company."
New Century would concentrate on growing only in Pennsylvania and New Jersey, Sidhu said.
He expressed confidence that it can attract both talent and customers from distracted competitors, and he plans to use his familiarity with the area to achieve those ends.
"There is no question about it; I know this market very well," Sidhu said. "There is a lot of talent available today, not just from Sovereign, but many other banks that are very inwardly focused right now."
He said he wants to emphasize organic growth more than he did at Sovereign, "because I think there is a huge opportunity today for that organic growth."
Sidhu intends to ratchet up New Century's marketing and pursue deposits heavily. He is working to develop a "unique selling proposition" to explain why people should do their banking there. "Every bank, all they're doing is hiking fees. They have forgotten they exist to be convenient for the customers."
Though credit quality has been an issue — 3.38% of New Century's loans were not current at the end of the first quarter — the trouble is mostly with small, multifamily loans that are well secured by collateral, Sidhu said.
He predicted that the loan cleanup would take just a few quarters, and he said Sovereign had been troubled when he went to work there around 1987.
"It had 12% nonperformers and less than 2% tangible common equity," Sidhu said. "It took about a year to develop the business strategy and then set out. The driver was shareholder value creation and taking the longer view, not just the quarter-to-quarter view."
His goal is to duplicate the 24% average annual shareholder return that he says Sovereign delivered in his tenure there. "I'm hoping to match that over the next five or 10 years that I plan to be active in the banking business."
At Sovereign, Sidhu was at the center of a brutal proxy fight over the way he handled a complicated deal to sell a stake to Santander. He survived the proxy fight but left soon after.
Santander recently bought the 75% of the company that it did not own, and with Sovereign hobbled by credit issues, the Spanish giant paid a far lower price than it had for its initial stake.
"You could make the argument that once Jay left, Sovereign fell apart," Polini said. "When we entered the recession, the cyclical loan losses for Sovereign were well above expectations. Whether that was Jay's fault or whether having Jay on board would've helped mitigate those losses, the bottom line is the company had major credit issues. Some people point the finger at him. Others say it's a shared responsibility. It's difficult to say. It's not fair to point the blame at somebody who's no longer at the company, in my eyes."
