M&A on back burner as Valley chief focuses on fintech partnerships

News | 3/11/2019
By Hilary Burns | American Banker
Published March 07 2019, 11∶21am EST

Ira Robbins is creating a new culture and vision for Valley National Bancorp in Wayne, N.J.

Robbins, who recently completed his first year as the $32 billion-asset company's CEO, is prioritizing technology and fintech while adding employee benefits and perks such as volunteer work days, new compensation aligned to Valley’s overall performance — and a technology bar where employees can have various issues addressed.

“There's no doubt he has reignited energy in that organization that had been lacking for so long,” said Collyn Gilbert, an analyst at Keefe, Bruyette & Woods. “He’s coming in with a lot of energy, passion and a performance mindset. He’s tackling a lot of issues at the bank that were left for dead.”

Valley struggled for several years after the financial crisis with “lackluster shareholder returns and investor frustration,” Joseph Fenech, an analyst at Hovde Group, wrote in an recent note to clients. Still, the company maintained a strong credit culture and a low risk profile.

Issues included a lack of accountability, expense discipline and underinvestment in infrastructure, systems, processes, and talent, Fenech said, adding that the company's past M&A strategy lacked pricing discipline and overlooked shareholders' interests.

So analysts were pleasantly surprised to find that the new management team, which has almost entirely turned over in the last two years, has a plan to tackle those problems. Valley is evaluating its branch footprint and closing underperforming locations, partnering with fintechs to solve customer pain points and fine tuning its focusing more on commercial clients with $20 million to $150 million in annual revenue.

It will take time for Robbins to overhaul the organization and turn it into a top performing company with cutting-edge technology, industry observers said. The company, which recently dropped "national" from the name of its bank, is searching for a new chief financial officer after Alan Eskow moved to a senior adviser role. Valley also needs to optimize its balance sheet and improve its capital structure, Gilbert said.

Robbins discussed his priorities and vision in a recent interview. Here is an edited transcript of the conversation.

How has your time as CEO gone so far?
IRA ROBBINS: It’s been exciting and challenging to be honest with you. I think internally there has been a lot of focus on creating an environment that’s conducive to customer growth while understanding that employee development is a driver for that — both personal and professional development. So taking a step back and making sure we continue to focus on fostering these internal and external conditions that really help employees grow internally is what’s really going to improve performance for Valley. That’s been more of a focus than what I would have originally anticipated.

What does that look like internally?
One of the first things we did was provide little things like a volunteer time-off day. It’s about supporting some of the core initiatives we believe Valley should focus on [such as] making sure we're connected with the community. It’s been a remarkable improvement, not only in employee moral but in the type of employees we’ve been able to recruit. We have changed compensation ... to make them feel more integrated with the overall performance of the organization. Just a lot more focus on the employee — not just salary — but what does that environment look like for the employee to make sure he or she wants to come to work not just because they feel like they need to collect a paycheck.

How would you describe the internal culture you're going for?
It’s interesting, we created tech bars in our corporate environment. How many banks of our size have tech bars where employees can come bring their laptop because there’s an issue with it? Little things like that are more reflective of what a technology company would look like. We understand we're a bank and there has to be a focus on customer safety and soundness, but I think we can attract a different set of talent with an understanding that banks provide significant financial solutions that require technology. There's a whole slew of employees today that should be looking at employment with banks that aren’t.

I understand technology has become a bigger focus since you’ve taken the helm.
We spent $20 million more on an incremental basis on technology in 2018 than we did in 2017. There are a lot of studies that break technology into three buckets. What you're spending on your main frames, your processors, things like that. A second category would be looking at growing the organization. The third category is innovation and in my mind the focus has to be about driving down the allocation for running the organization and increasing the allocation for innovation. If we're able to do that, we can solve more problems, more customer pain points and provide a differentiated service. It’s not just more money going to the technology spend, it’s more money going to innovative and growth technology as opposed to running an organization.

What have you done to shift the mentality to be more innovative?
It starts with the board and works its way down. One of the first board meetings we had was at a financial incubator in New York City. We took our board to this incubator to show them the different types of technologies coming to market. We have created these hives internally where employees have the ability to have conversations about different pain points for customers and different potential solutions we could be thinking about. Creating a structured — but unstructured — environment and understanding that we're very supportive as an organization of trying new things. We have partnered with different fintech companies, whether it be an equity partner or purely a partner, to help determine whether their technology is going to be valid or viable, so there’s a real effort within the organization

How many fintechs partnerships do you have?
Only a handful today but there are a bunch more we're assessing. We just had a group go out to California to meet with some different fintechs. Once again, they're tailored meetings for ones that are specific that we think could be potentially helpful to our customers as we move forward. We’ve tried to remove ourselves from the traditional dog-and-pony show where a bank would be introduced to any fintech. [Instead] be really selective and proactive solving certain solutions.

What fintech partnerships could make the biggest impact?
We just reached a partnership with a company called Authorti. There’s an app out there — Valley Authorti for Google and Apple users. We introduced that about a month ago now and I think we're really seeing positive feedback from that.

What are your top priorities for 2019?
Definitely improving the financial performance of the organization would be number one, without question. Bigger picture, long-term is how do we ensure relevancy? Making sure we're relevant in today’s environment but also in the banking ecosystem, which I think is going to look dramatically different three to five years from now.

What is the M&A strategy?
I think much more focused on making sure we achieve the strategic need of the organization. I wouldn’t say we feel obligated by any means to pursue M&A. However, if there's an opportunity out there that we think could accelerate the goals or objectives, that's something we would definitely look to pursue. But we think we have viable alternatives just by staying independent and pursuing our own internal strategies.

Valley recently announced corporate cuts. Where will those savings be reinvested?
No surprise, probably technology. Some of it drops to the bottom line obviously and a lot of the cost saves that were outlined were a result of different technologies that we’ve implemented throughout the organization. ... Making sure your employees feel that you're providing them with the best technology, with leading innovation allows you to attract much better talent. Making sure we reinvest some of those savings back into technology and not just put everything to the bottom line helps with our long-term performance.

What are Valley's plans for its Women in Business program? I noticed that Cami Gilbertini, the program’s founder, just left to join Pilot Bank.
Cami, based on what she has been doing with us, got a wonderful opportunity at a much smaller bank in the Florida market. For us specifically, the goal has always been to make women in business be much more focused on the regional areas. We have talented women across our organization and the focus has always been on providing them an opportunity to lever their network and to expand providing services and products to a segment of women within their individual geographies. Cami definitely helped build that out for us and now we're excited to look at what we are doing in the Orlando market and up in New Jersey and New York. We have talented employees that will lead those efforts.

How are you thinking about the footprint. Are there markets you would like to enter to exit?
It’s a great question. It goes back to my comment earlier, understanding who your targeted segment is and making sure you're providing solutions to that targeted segment. I think that target segment for us isn’t necessarily constrained by physical geography. I don’t think a zip code should determine who your target customer is. A business need should determine who your target customer is and as a result I think there is an opportunity for us to grow without necessarily expanding into a different geography based on a branch. I’m not sure branches will necessarily define our growth moving forward but the ability to connect with target customers will.