Mergers and Acquisitions

My first opportunity to learn the banking industry came while I was searching for my third, six-month cooperative education experience while attending Drexel University’s LeBow College of Business. My first two cooperative education experiences had placed me with large corporate companies and I was seeking a localized experience. I chose to work at Roxborough Manayunk Bank (RMB) because the position allowed me to gain exposure to the loan underwriting process and work directly with the Bank’s Chief Credit Officer. At RMB I learned how to calculate industry standard ratios and underwrite basic commercial loans, but RMB’s sale to Citizens Bank within my first week of working is what solidified the experience for me.

The merger provided me an opportunity to learn first hand how employees of a small community Bank act as their employer is merged with an international banking conglomerate. I watched as employees slowly left the company, seeking oportunities with other community banks. I observed managers tried their best to keep loyal employees motivated while workload dwindled and decisions were being made elsewhere. And I remember the sinking feeling I had when I left the basement office of RMB’s main branch for the last time.

But the acquisition and merging process is not entirely cold. My colleagues from the credit side of RMB that stayed throughout the acquisition, were all offered positions with Citizens Bank. I personally served out the remaining month and a half of my cooperative education experience at one of the Bank’s regional offices in Center City Philadelphia, where I learned the difference between offering customers small mortgages and credit lines and offering customers industry-specific loan products and interest rate risk management products. And as my cooperative education experience neared its end, I moved into a teller position so that I could continue my banking industry education.

Personal Branding

In banking, it is often touted as part of the four (4) C’s of credit that repayment of our loans comes from the character of the individual(s) who operate the businesses that we lend to. This requires banks to perform their necessary due dilligence including but not limited to how the company has historically handled their accounts payable, handled their prior debt obligations, and how the principals have historically handled their personal expenses. These factors plus market trends in the industries that the business serves and the overall economy are combined to form a risk profile for our potential customer. This provides a snapshot for the Bank to weight two decisions, whether or not to lend to the potential customer and the appropriate fees and interest rate to charge the customer to compensate for the risk.

When I was using my credit cards to finance fancy dinners, flashy cars, and expensive gifts during college, I knowingly jeopardized my personal brand. Mesmerized by America’s buy now and pay later philosophy, my credit card companies considered me a high-risk customer as evidenced by late payments and interest rates that rivaled batting averages. Coupled with my lack of a savings account, my personal brand became a rubber stamp with the word “DECLINE” in bold block letters. Although my friends had the foresight to maintain their financial solvency in college, there were many of my colleagues that graduated with similar debt levels as myself. But the difference lies in how we handled the challenge. Unfortunately, success stories such as my own are often overshadowed by those who refuse to take responsibility for their spending habits. About a month ago, I ran into a former colleague of mine from college who discussed his personal situation with me. Hampered by high-balance credit cards and student loans from college with a humble annual salary, he decided to neglect the credit cards altogether and maintain his consumerist lifestyle. Having a blatent lack of ownership for wastrel spending will ultimately hurt his personal brand when it is time to purchase a house, apply for new credit, and find future employment.

But the beauty of America is that it favors those who work hard and I have a hard-earned opportunity to try again.

Mint Misses on Data Privacy Protection

My marketing and technology infrastructure advisor, Roman, recently sent me an e-mail inviting me to try Mint. For those who may be unfamiliar, Mint is a personal finance management application available free on the internet. Mint allows its customers to centralize their banking, savings, credit card, and brokerage accounts to get a snapshot of where and how they are spending their money. And one of Mint’s most discussed features is that the application will search those transactions, and provide its customers with opportunities to reduce credit card interest rates and improve savings account interest rates.

Uploaded with plasq’s Skitch!

Mint goes way beyond just reporting and budget tracking. Using a patent-pending search algorithm, Mint constantly searches through thousands of offers from hundreds of providers to find the best deals on everything from bank accounts to credit cards; cable, phone and Internet plans; and more. Mint’s suggestions are “unique to you” based on your individual spending patterns. For example, if you have $20,000 in a bank account that’s earning no interest, Mint might recommend a high interest rate savings account from ING or HSBC. Acting on that suggestion would give you an extra $900 in interest income over a year.
Mint.com - About Us

I originally tested Mint while it was in private beta, and while I liked its sleek interface, I was concerned about identity fraud risk from how it calculates opportunities to improve its customers’ interest rates. The application searches its customers’ financial transactions and uses that data to offer services from its partner organizations. To address these concerns, CEO Aaron Patzer states:

I’ll make a bold statement: You’re safer on Mint then with online banking. On Mint, you’re completely anonymous. We never ask for a name, address, or SSN - just an email. We know about your finances…but not about you. We’re also independently verified by Verisign, TrustE, and several outside agencies.
Aaron Patzer
Founder & CEO, Mint.com

What Patzer has not addressed is how a company operating for less than three years; Mint was founded in November 2005, can provide its customers with more security than long-standing financial institutions that have substantial risk management procedures in place. Personal financial data is extremely sensitive which is why financial institutions go to great lengths to keep it protected. Data security within a financial institution starts with website encryption, continues with intricate password management, and finishes with barring employees from accessing personal e-mail websites and social networking websites from behind the corporate firewall. This mitigates the risk that employees will inadvertantly disclose sensitive customer data. Additionally, financial institutions are regulated by a number of Federal and State regulatory agencies to ensure that they are maintaining sound data privacy procedures.

The U.S also has one of the most highly regulated banking environments in the world; however, many of the regulations are not safety and soundness related, but are instead focused on privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, anti-usury lending, and promoting lending to lower-income segments. Even individual cities enact their own financial regulation laws (for example, for usury lending).
Wikipedia - Bank Regulation

In my humble opinion, it would be irresponsible to trust personal financial data to a company that does not follow the same data privacy precautions.

My bootstrap business experiment

One week ago I had lunch with my marketing and technology infrastructure advisor, and he asked me to describe the name “bootstrap | economist” in my own words. While in my mind I knew exactly why I chose the name bootstrap | economist, I found it challenging to accurately portray my thoughts in words and syllables. I rediscovered a post I made in March discussing my reasons for starting bootstrap | economist, but found that it lacked explanation of how I chose the name:

I started bootstrap | economist because I had a lot of ideas and I wanted to set them free on the web. I have been sharing parts of my life online for years, but this was my first time not hiding behind corporate firewalls and forum moderators. I had been keeping an offline journal for several months prior to starting bootstrap | economist, and realized that if I published my thoughts I would have an opportunity to help others and not just myself.
a (re)introduction

I chose bootstrap for the philosophy utilized by many web technology startups, where aspiring chief executive officers rely on wit and intuition to build viable businesses instead of substantial investments by venture capitalists. This philosophy is particularly important to me because my wastrel spending in college has limited my access to credit. Without the safety of a credit card behind me to fund temporary shortfalls in my personal working capital, I have had to carefully juggle my cash to ensure that it lasts throughout each pay period. I chose economist; a term typically reserved for those who specialize in the science of economics, in memorandum of my grandfather. He himself was an economist, humbly serving the United States government in his earlier years, and sharing his knowledge to students in South Florida and Kingston, Jamaica until his unexpected death in December 2003.

When combined, bootstrap | economist is a business mentality challenging entrepreneurs to understand the internal and external drivers of their industry and develop fiscally responsible business processes. While reflecting on my earlier post, I neglected to mention that bootstrap | economist foregoes intensive audio and visual multimedia in favor of a low-bandwidth design. This provides my writers and I with a global printing press, easily accessed by developing internet communities who do not benefit from the high bandwidth internet services many of us take for granted. And at less than fifteen dollars per month to operate, modest advertising income of twenty dollars per month provides bootstrap | economist with an operating profit of 25%.

Bankbook

Just more than one (1) year ago I joined Cambrian House, an idea-sharing web community based in Calgary Canada. Today I read on TechCrunch that Cambrian House has been purchased by established venture capital firm Spencer Trask, who will undoubtedly attempt to develop several of Cambrian Houses seven thousand (7,000) ideas. I only had the gall to post one (1) idea to the community, and want to share it with my readers prior to Spencer Trask dimming the lights at Cambrian House.

My idea is to come up with a marketplace where customers can submit their proposals, budget for the project, income statements / balance sheets, tax returns and personal financial statements of the borrower, and other pertinent information; then put the project out to bid. My thought is that a risk rating can be developed from this data.

The bidders on the projects can be individuals or financial institutions and would work similar to Prosper. Revenue can be generated by advertising as well as charging a fee to the financial institutions for using the service.

As always, comments are encouraged.

Facebook acquires debt financing.

Palo Alto (Calif.)-based Facebook has secured a $100 million dollar leasing facility to purchase additional servers for its rapidly growing web application. The Company has partnered with TriplePoint Capital, a Menlo Park (Calif.)-based company that specializes in providing debt financing to venture-backed companies. The TriplePoint Capital leasing facility will offer Facebook the flexibility to exchange and replace its equipment during the term of the lease.

Facebook’s need for new servers is two-fold; it will help the Company avoid service interruptions and provide headroom for technology startups that they acquire. It has been rumored that Facebook may target technology startup twitter, whose users have recently complained publicly about slowdowns and outages perpetrated by recent growth.

TriplePoint Capital was established in July, 2005 by James P. Labe, and has provided more than $500 million in debt financing to venture-backed companies, including Google’s YouTube and Slide.

The last thing the entrepreneur wants to do is see those precious equity dollars flowing into equipment purchases. It’s a very unproductive use of equity to plow it into fixed assets.
TriplePoint Capital’s Chief Executive Officer Jim Labe

Many of TriplePoint Capital’s customers have received equity financing from Kleiner Perkins Caufield & Byers, Mayfield Fund, and Sequoia Capital. By using debt financing, Facebook can reserve its $360 million in equity raised primarily through Microsoft Corporation ($240 million) and Hong Kong Billionaire Li Ka-shing ($60 million).

Avoiding Unproductive Conversations

On this morning’s HBR IdeaCast(85) Podcast, the featured guest was Marshall Goldsmith, who writes the Ask the Coach Blog at HarvardBusiness.org. Goldsmith and Paul Michaelman, the IdeaCast’s discussion leader, talked about counterproductive communication in corporate America and how sixty (60%) percent of workplace conversations involve employees discussing their self-importance or harshly criticizing their coworkers. It is in management’s best interest to mitigate these conversations because of the reputation risk associated with the disclosure of sensitive information. For example, a boastful or inflammatory employee may exercise poor judgment outside of the workplace and disclose private data to unrelated third party. To help my manager mitigate this risk, I have adopted a process of asking myself several questions before I speak.

Why would I want to say this?
This question forces you to think at a very high level.
Personally, if I am unable to ascertain a reason as to why I am going to say something, I tend not to say anything at all. Additionally, if the reason is anger, jealousy, fear, or any other emotion that is best kept out of the work place, I will also tend not to say anything at all.

Am I right?
This question forces you to make a decision.
In prior experiences, when I felt that I was right about an issue or a situation, I would speak my opinion at will. And my colleagues were not pleased. This behavior lead to a series of humbling experiences while I was in college, and I have learned that being right all the time quickly loses its novelty.

Is it worth the risk of being wrong?
This question forces you to think about the consequences of your actions.
In college, my free expression of my opinions were both self-gratifying and inflammatory of my peers. I cringe at the memories of what I said when I was an undergraduate, but use those experiences to help me avoid making the same mistakes as a professional. It has been my experience that most of the time, it isn’t worth the risk of being wrong.

Overall, this process has lead me to sublimate my ego so that I may have honest and productive conversations with my colleagues.

Why I work for America’s Most Convenient Bank

I have been seeking my dare-to-be great situation since I decided to leave a two-hundred (200) employee community bank last year in search of the Manhattan financial dream. It was promising; I had lined up four (4) interviews with international banks of varying size. The positions ranged from corporate finance, specialty financial vehicles, and shipping finance. But I failed to land a position after poor follow through demonstrated inexperience on my behalf. In hindsight it was for the best, because I was in a financial position which would make transitioning to a New York City resident difficult. I set out again to find a new position, expanding my search to Chicago, Atlanta, and any other city that would have me. I called in all of my connections including family, past companies that I had interviewed with, and my credit training instructor. I lined myself up with a barrage of interviews many of which were similar to my last position.

Headstrong not to make a horizontal move, I trudged on looking for the right opportunity. It came from Lisa Hall, a Human Resources recruiter for Commerce Bank who spoke with me for twenty-five (25) minutes on the phone, immediately following an unsuccessful interview. I went through a rigorous yet expedient interview process including a one (1) hour face-to-face interview with Lisa Hall, a three (3) hour interview with my soon-to-be manager Jim Nixon, and a quick meeting with his boss Roger Bomgardner. Even with Bank of America in New York City and Merrill Lynch in Chicago knocking on my door, I chose Commerce Bank because they made their decision to hire me within two (2) weeks of first contact.

Over the past year I have learned the importance of detail-oriented underwriting, seeing potential deals in the eyes of a risk manager, a salesman, and a customer, and how hard you must work when you are in a larger pond of employees. On Monday, my company Commerce Bank was acquired by TD Banknorth, a subsidiary of TD Bank Financial Group. For me and my colleagues, this is a tumultuous time because we must expediently adapt to new policies from a multinational corporation that avoided sub-prime mortgage exposure and enjoys helping the environment. With unemployment at 5.1% and growing, I am up for the challenge and feel fortunate to be working for a company in a position to weather this economic uncertainty.

Banking in an internet cafe

It’s a typical Saturday in Philadelphia and I once again find myself sitting in my local ING Direct Cafe (”the Cafe”), a retail bank masquerading as a coffee shop and internet cafe. The Cafe caters to the coworking generation with its shared office space, cafe culture, and double-agent barista-tellers offering sage savings advice with your purchase. The front of the Cafe is mixed with round tables and plush chairs, and is peppered with families, students, and professionals sipping the afternoon away people watching. I am at the four-person granite bar where the mood is like my corner pub, with NASCAR on the high definition television above me and a nervous home buyer named Sandy sitting next to me. Sandy is taking advantage of the free wifi to make the final decisions for her purchase, and isn’t shy to share her story with the non-threatening internet nerd sitting next to her. The other two seats are now empty, but serve as a revolving door for patient patrons waiting to take advantage of the Cafe’s eight internet terminals.

Per ING Direct’s website, their approach to banking is backed by ING, a Dutch-origin global financial institution that offers banking, insurance and asset management to sixty-million customers. The Cafe is an excellent complement to ING Direct’s no-frills retail model, passing the savings from a limited bricks and mortar presence onto its customers through higher-than-normal returns on their various demand and long-term savings products. Additionally, the Cafe offers added value to its customers by making the typically mundane experience of retail banking more enjoyable. But while I have been sitting here, I have noticed that customers typically come for the food, beverages, and internet, and shy away from talking about ING Direct’s financial services. There are several possible reasons for this including a hesitancy for potential customers to discuss their personal finances in public, current customers taking advantage of the ING Direct’s self-service nature and handling issues at home, or that customers simply want the Cafe’s ancillary services and aren’t interested in an online retail bank. In my humble opinion, the Cafe should offer a private room where the employees may discuss their products privately with potential customers.

Overall, the ING Direct Cafe is a unique alternative to the traditional retail banking model, and offers several needed services for the urban customers that they serve.

a (re)introduction

Are you thinking about purchasing your first investment property? Are you already an investor seeking to refinance your properties? Do you have a large-scale project in mind? Not sure where to start? I can point you in the right direction. Have no idea what LTV is? Go ahead and ask. I am here to help YOU. If you are looking for an independent analyst, you have come to the right place.
An Introduction

I started bootstrap | economist because I had a lot of ideas and I wanted to set them free on the web. I have been sharing parts of my life online for years, but this was my first time not hiding behind corporate firewalls and forum moderators. I had been keeping an offline journal for several months prior to starting bootstrap | economist, and realized that if I published my thoughts I would have an opportunity to help others and not just myself.

On the bus yesterday morning, I caught Michael Arrington’s notice that he was ranting on new media publishing politics.

And writing good content is only half the battle. You have to figure out the complex, dynamic web of politics between bloggers and mainstream media before you post to know where to get support. And you’ll need support in the form of links from other prominent bloggers. An early push can take a post and make it a headline on TechMeme, which leads to page views and notice by sponsors. But since blogging is almost by definition a conversation between bloggers, fights tend to break out over emotional issues. Cliques develop. Can you count on them to support you down the road?
- Michael Arrington, TechCrunch

I learned this lesson early on when Michael’s incredibly popular weblog, TechCrunch errantly credited me as the designer of FlashElementTD, an addictive web game I used to pass the slow days at work. When the story was published, I saw an immediate spike in traffic to my blog; which at the time was located at davidlitsky.com, and how quickly their posts were syndicated throughout the web. I subscribe to the Charles Foster Kane philosophy of “trying everything to see what works” and took an inch of a gesture and made myself an unwelcome guest by using their comment system as a soapbox for my perceived-to-be brash opinions. One of many mistakes that I chalk up to my entrepreneurial spirit.

But as I face new challenges in my career as a blogger with a full time job, I have recognized that I face different challenges than many of the other bloggers in this expansive social network. I am a financial risk manager for an east coast bank which provides me with an opportunity to meet numerous entrepreneurs across a wide range of industries, but because of regulation to protect our customers’ privacy, I choose not to speak about my experiences.

A few weeks ago, I re-read a May 2006 interview between then Risk Management Association (RMA) President and CEO Maury Hartigan, and RMA Board Member Bharat Masrani. At the time, Mr. Masrani was vice chair and chief risk officer of TD Bank Financial Group. In the interview, Mr. Masrani speaks about the risk of negative publicity which has the potential to cause a decline in the firm’s value, liquidity and customers. This risk; also known as reputational risk, is derived by all other risks that a firm identifies and manages including, but not limited to credit risk, market risk, operational risk, and regulatory & legal risk. When asked if there are any observable metrics or criteria in the area of reputational risk, Mr. Masrani responded:

My first answer is a simple one, and it’s a good test. Let’s say the bank undertakes a particular activity, in lending or management or in selling or manufacturing or trading a product. If that activity appeared on the front page of a business journal, would the bank be able to stand up and say, “You know what? I’m comfortable with that.” That’s what I would call the newspaper headline type of test. Am I going to be proud when this is announced? Am I going to be comfortable if this appears in print?

This particular quote reminded me of my eighteen (18) months as a risk manager for the Delta Rho chapter of the Alpha Epsilon Pi fraternity. A rewarding but thankless job, it was up to the risk management committee to identify and mitigate the high-risk behaviors of college-aged men that “just want to have a good time”. As an undergraduate student, most of us are self-absorbed and may not fully understand the consequences of our actions, and how they may negatively affect our organization.

But I digress. When I started blogging, I was appalled by what people were saying about members of their community. Although at the time it acceptable for me to use my words as inauspicious instruments, I chose to bite my tongue if I had nothing nice to say. This came off as creepy, weird, and fake to my friends that had brought me into the blogging community, but I felt that my reputation was more important to me than a few cheap links that would do very little to sustain the growth of my blog. I went against the grain, but as noted biographer and historian David McCullough says,

We need leaders, and not just political leaders. We need leaders in every field, in every institution, in all kinds of situations. We need to be educating our young people to be leaders. And unfortunately, that’s fallen out of fashion.