BankAtlantic chairman discusses housing, interest rates and life after Enron.
Q. Barnett Banks was purchased a decade or so ago; do you see your bank becoming the new version of `Florida's bank'?
A. The answer to that is yes. If you'd asked me that question, and I was asked that question a number of times, when Barnett was sold, my answer was at that time that we weren't interested in size. We were only interested in the quality of customer service
Ten years later, my answer is different. Today, I would say that it's not only about service and convenience to the customer, but it's also about market share. Market share is important because the larger you get, the more people become knowledgeable of the brand. And that drives additional business. So we have figured out over the past 10 years how to give extraordinary customer service and convenience and at the same time grow at an above average rate. On that basis, we feel we got a good shot at replacing Barnett as a statewide bank
Q. Is that possible with all the banks, especially the major out-of-state banks?
A. Well, let me give you the economics, which may be a little difficult to recognize, but these numbers actually do work. When Barnett was sold, it was about $38 billion in size. BankAtlantic, in its core deposit base four years ago, was $600 million
We've grown our core deposits by a compound annual rate of over 30 percent a year, so we have today over $2 billion in core deposits. If you continue to compound at 30 percent a year, two billion dollars becomes eight or nine billion dollars in five years, and becomes almost double that in another five years, and doubles that again in another five years. So, if you look at that, in 15 years we would be the size of Barnett Bank at the time it was purchased.
Q. Those are big ifs, big assumptions --
A. Well, yes, lots of things come into that mix. Can you continue to grow at 30 percent a year? You have to maintain the level of execution, so that you continue to give extraordinary customer service and convenience. The good thing about Florida is there's tremendous opportunity in Florida for all the banks and, for that matter, for lots of different businesses, because it's a growing state. We're working very hard to capture a large share of that growth.
Q. Some would say the Bank Secrecy Act [violation] might suggest managing that growth is difficult.
A. It's clearly our responsibility to stay abreast of regulations and requirements as we grow. For example, three years ago, we probably had five people working in a department dedicated to Bank Secrecy Act issues, and today we have 45 people in that department. The reason for doing that is that we're doing a lot more business and the regulatory burden is a lot higher. We're committed to growing the back office so we can provide extraordinary customer service and meet regulatory requirements as well. So the back office will grow as we grow the branches, as a tandem.
We have 2,000 employees, but the issue we had [with the BSA violation] was the work of a single rogue employee who didn't follow the rules. It's difficult to stay on top of every single employee and transaction, and that's why we put in a whole new computer system and database to track this information. Today our wire room counts about 10,000 outgoing and incoming wires every day. In the past, the technology to track all this didn't exist, but today the software does
Q. There's a lot of speculation about the state of the housing market. Is this the end of the bubble, a soft landing? What's going on?
A. First of all, I think that if you look at the softer side of the economy, unrelated to the numbers for the moment, the economy is driven generally by the consumers' optimism or pessimism with regard to the economy, and then it becomes a self-fulfilling prophecy. So, if people believe that housing is strong and pricing will go up, then they will make a buy decision today. If people believe that housing is soft and prices will stay the same, or go down, then they're going to make that buying decision later, or not at all.
I believe that what is, to a large extent, driving the softness in the market today is that the media is creating a self-fulfilling prophecy that housing is soft
Personally, I believe it is more sentiment, consumer sentiment, as opposed to economics. I believe that pricing increases will slow, but they are not going to come down in any great way, they may just not go up as fast. I think it will be a soft landing for housing. And ultimately, when the tide turns, the market will be strong again.
Q. What about the future for interest rates? What does your crystal ball point to?
Short rates have moved up
to 4 percent. Those are short-term rates. Long-term rates have actually either stayed flat or come down
So today, those increases in interest rates have not negatively impacted mortgage rates and the consumers' ability to obtain those mortgages.
If the long end of the market starts to go up, with every percent increase it will take some portion of the market, some portion of consumers, out of the market. I don't think it will create any significant problems for the economy for at least
2 percent. A 2 percent increase in mortgage rates -- I mean, it's obviously going to be more expensive, but I don't think that's enough to knock out a large segment of the population from being able to get attractive mortgages. Beyond 2 percent, I think, then it does start to create some stall in housing and financing.
Q. Do you worry that all the adjustable rate mortgages will backlash if rates go much higher?
A. I don't view that as much of a concern as some others do. Generally, buyers are qualified for these mortgages at the higher rates even though the actual mortgage is at the lower rate. So there is some room in there for rates to go up without creating a negative issue for the buyers. Additionally, most buyers do have choices they can make. So if they start to get into a squeeze on mortgage rates, they can start to eliminate other expenditures. They have some choice in terms of eating out or what they spend for clothes. In this environment, I don't see that to be a significant issue, again, for another 2 percent rise. Beyond that, we may start to have some issues.
Q. What about interest-only mortgages?