California has a history of attracting outsiders, whether it’s the beaches, the promise of Hollywood, the national parks or simply the culture.
Here in the finance world, it’s the tremendous middle market and wealth arena, especially in Los Angeles, that is enticing financial institutions of all sizes as well as advisory firms to the area.
SoCal’s thriving middle market is not necessarily a new development, however, as the region’s banking landscape continues to see shake ups – including the fall of Silicon Valley Bank – as well as a national push toward mergers and acquisitions, institutions are swooping in to get some of the action.
“All banks, large or small, generally want to be in this market because of the demographics,” Kamal Bajoria, managing director of investment banking at Pasadena-based Wedbush Securities, said. “SoCal is one market that has a very large proportion of small businesses. And what banks are really chasing at this point is core deposits and those core deposits are really coming from businesses.”
Deposits from these businesses are appealing to banks because they are more stable than deposits from individual consumers, Bajoria said, making SoCal’s large small business landscape particularly attractive.
Another allure is Southern California’s large pool of high and ultra-high net worth individuals and families, which creates opportunity for wealth management firms to expand their businesses.
PNC Bank can attest to both of these points. PNC President Mike Lyons said the Pittsburgh-based bank has been “generating record amounts of corporate customer growth since (the fall of) Silicon Valley Bank,” as well as an increase in new wealth management customers.
After opening its first L.A. office in 2022, PNC’s goal has been to ramp up its business banking and wealth management presence here and eventually plans to pursue retail – a move that is often made easier through acquisitions, which PNC said it would be open to if circumstances aligned.
Acquisition acceleration
Making acquisitions of businesses with large West Coast market shares can be quite lucrative when eyeing expansion.
“In a competitive market like Southern California, it is difficult for banks or non-banks to just grow organically on their own,” Bajoria said. “I think it’s a good strategy to combine both organic growth as well as acquisitions if you can find the right one for the right price, which some of these banks have actually managed to do.”
Bajoria pointed to BMO Bank’s acquisition of Bank of the West, which had been headquartered in San Francisco, as a major accelerator for its increased footprint in the SoCal area, not only in terms of retail, but also through Bank of the West’s wealth management business.
While Chicago-based BMO has been involved in California across its commercial banking as well as wealth management and capital markets for years, the missing piece seemed to be retail presence, Chief Executive Darrel Hackett said.
That was until the Bank of the West deal, which closed in 2023 and added more than 500 branches and nearly 2 million new customers to BMO’s repertoire, about half of which were California clients.
“We’ve been really happy about (the acquisition) ever since it closed,” Hackett said. “It gives us a really great presence now across all of our business lines and we have a really strong client base in our retail footprint there that we’re excited to build.”
Of BMO’s business lines, retail grew the most as a result of the acquisition, but it also helped accelerate growth in the bank’s commercial business.
Looking southeast, EverBank, which is based in Florida, will also soon reap the rewards of inorganic growth once its acquisition of Sterling Bank & Trust closes, which is expected to happen this quarter. While Sterling is based in Michigan, the majority of its branches operate in SoCal and the Bay Area. Within the last few months, EverBank opened financial centers in Encino and Roseville as well as a commercial banking division in Irvine to further make an imprint in the area.
Patrick Nygren, head of retail banking, said the Sterling deal will significantly accelerate EverBank’s goals to expand both its commercial and retail businesses in the West Coast.
“The acquisition of Sterling Bank was a natural fit because of its strong local presence, established client base and alignment with our business objectives,” Nygren said. “Sterling’s reputation and expertise in the California market made it an ideal partner to accelerate our growth plans in the region.”
These mergers and acquisitions can also create pockets of opportunity for third party banks to source talent and clients that may not be staying with their previous teams, said Robert Besser, KeyBank’s newly designated commercial leader for the Southern California market. Besser was promoted to this position in December as KeyBank, which is based in Cleveland, decided to focus its efforts on expanding its commercial banking business in Southern California.
“What has really affected the market is just the disruption of the mergers and acquisitions that have taken place over the last few years,” Besser said. “It’s really driven opportunities both to find experienced, talented bankers as well as opportunities for companies looking for new banking partners.”
Hiring local talent
A company’s size, name recognition and focus areas will all impact its strategy for expanding into the SoCal market; however, Bajoria finds that investing in local talent is wise for all growth initiatives.
“While SoCal is a very attractive market, it’s also extremely competitive,” Bajoria said, adding that not everyone will succeed here. “I can’t really say enough how important it is to hire the right people, because it’s really the people that bring in the business and bring in the relationships.”
A local hire himself, Nygren joined EverBank about 15 months ago but has been working in the banking world in Los Angeles for more than a decade. With quite a few members of its executive team already operating in SoCal, the bank continues to seek new hires and has found opportunity through recent disruptions in the industry.
“The recent challenges faced by some California-based banks have indeed created opportunities for EverBank to step in and provide stability, particularly for businesses and individuals seeking a reliable financial partner,” Nygren said. “Additionally, the availability of local talent with deep expertise in the region has allowed us to enhance our team and better serve the community.”
Cascadia Capital, a Seattle-based middle market investment bank focused on family business, entrepreneur owned businesses and private equity, has also taken advantage of a company in turmoil amid efforts to grow its business in L.A. over the last several years.
Cascadia recently hired Michael Del Pero and Muizz Kheraj – who each have decades of experience in the SoCal market – from B. Riley Financial, an investment firm in Sawtelle that has been under investigation by the Securities and Exchange Commission and has seen a significant stock price decline in the last five months.
Christian Schiller, Cascadia’s vice chair who oversees growth initiatives in L.A., said hiring locally has led to a “dramatic” expansion.
“It’s kind of been a one plus one equals three, if you will, where we had our own independent network and brand and (Del Pero and Kheraj) had their own independent personal networks and brand,” Schiller said. “Then we came together … and focused on where we had good crossover.”
The firm has formed partnerships with the L.A. chapters of groups like the Young Presidents’ Organization (YPO) and the Association of Corporate Growth (ACG) to further connect with important players in town.
PNC has also prioritized local talent in hiring Todd Wilson as the president of its greater Los Angeles market. Wilson, who has been building out PNC’s SoCal team for the last couple of years, has more than a decade of experience working in Los Angeles.
“We want to build who we are in L.A. the right way, and we’re going to make sure we find the right partners, and we find the right people internally to help grow this organization,” Wilson said.
In addition to in-house local hires, PNC has also focused on establishing partnerships with L.A. companies and organizations including TCW Group, a downtown-based global asset management firm, to source deals.
And when a bank like BMO makes an acquisition, it naturally inherits some existing talent. In this case, BMO gained local players from Bank of the West, yet it also outsourced some L.A.-based hires, including Michele Havens as head of wealth management and Tony Sciarrino as head of U.S. commercial banking.
“While we’re one of the largest banks in the country, one thing we know is that banking also is a local business, and when you bring in talent like Michelle and like Tony, it really helps us with our perspective of making sure that we understand the nuances of the local communities that we’re in,” Hackett said.
While many larger platforms based in the Midwest and East Coast view SoCal as the next step for sweeping the nation, some smaller banks see it as a jumping off point to begin expansion.
Poppy Bank, a community bank based in Santa Rosa, is working to spread its reach across California, and SoCal has been of particular focus this year. In the last few months, the bank opened its first standalone branches in L.A. County in Santa Monica, Calabasas and Pasadena and plans to open locations in Newport Beach and Brea in the next year.
Chief Executive Khalid Acheckzai said when expanding to new areas, Poppy intentionally builds teams and hires managers who are from those specific communities. What drew Acheckzai to SoCal was loan demand and sizable economy.
Catering to your place in the market
All that to say, it’s not just enough to hire locally but companies must also hire strategically based on what they have established as their target in the market.
“Whenever you want to enter a new market, whether it’s SoCal or any other market, first and foremost, you need to go ahead with really just identifying what you want to be in that market, because the market is just so diverse here,” Bajoria said. “You really need to pick your horses and then hire the right team around it.”
For larger banks, this means digging into which types of businesses to focus lending on as well as what size and then scouting experts with experience in those fields.
“Pulling in more deposits from those customers and even hiring wealth management teams to further penetrate and get (assets under management) from those same small business clients (will allow) you to build a banking relationship, a deposit relationship and also a wealth management relationship, which is really the right strategy to monetize some of these markets,” Bajoria said.
A keen strategy for smaller banks to cater to is lending to the small business clients that larger banks either can’t lend to, due to regulations, or prefer not to lend to.
Having a target applies to advisory firms looking to expand here as well, such as Chicago-based Ferguson Partners. Toward the end of last year, the firm decided to build out its presence in the west region, hiring Bob Mayes to oversee this initiative and open the firm’s Los Angeles office. Mayes identified multifamily and industrial operators, as well as private equity in the real estate sector as target areas for the firm.
“The goal here in short is to gain market share,” Mayes said. “It’s hard to compete in Southern California in particular without boots on the ground.”
In terms of the investment banking landscape, Cascadia aims to differentiate itself by going against a generalist banker model, where bankers operate across a variety of industries.
“Our model is to have each banker be focused in one sub vertical niche and there’s not another investment bank that really follows that strategy in the L.A. market,” Schiller said.
This means, for example, having a banker specifically focused on apparel, another on DTC ecommerce and another on specialty industrials like Del Pero.
“You have to have a ‘raison d’être,’ a reason to be different,” Schiller said. “If you’re just (operating) like every other investment bank, that’s not really a good strategy.”
