One small bank sees opportunity in U.S. crisis

KANSAS CITY, Missouri (Reuters) - When UMB Financial Corp chairman Mariner Kemper takes stock of the credit woes threatening to topple banking companies across the United States, he doesn’t see crisis -- he sees opportunity.

Kemper’s $9 billion-asset UMB is a one-time Wall Street dud known for preaching long-term stability over short-term profits. Now the company is coming off a record year and a relatively rich stock price after refusing to play in the subprime mortgage game that has threatened the stability of many U.S. financial firms.

“A lot of our competitors are driven for short-term benefit,” Kemper said in an interview at UMB’s Kansas City headquarters. “But we don’t chase anything that is hot or trendy. We make good loans to quality borrowers.

“Now,” he added, “we can cherry-pick while our peers are busy cleaning up their messes.”

UMB, which operates across the U.S. heartland states of Kansas, Missouri, Nebraska, Colorado, Oklahoma, as well as Illinois and Arizona, said it has posted only one residential home lending-related loss in recent years -- a home equity loan for $14,000, all of which was recovered.

Indeed, while the subprime mortgage crisis and plunging home values roil the U.S. banking industry, toppling the giant Bear Stearns Cos and threatening others, companies like UMB that have been scorned in the past for their cautious lending strategies are seeing both a measure of vindication and opportunity.

“They are very conservative and in the current environment conservative is good,” said Jim Schutz a bank stock analyst with Sterne Agee & Leach Inc. “They’ve held up much better than most bank stocks.”


The troubles now rocking the U.S. banking industry are rooted in an environment that encouraged innovation in lending, rapid growth, and what many see as a combination of lax government oversight and greed on the part of both consumers and investors.

On March 31, Treasury Secretary Henry Paulson proposed a sweeping overhaul of the U.S. financial regulatory system as millions of home loans go sour and in the wake of a Federal Reserve-backed bailout of Bear Stearns, the nation’s fifth-largest investment bank. The move comes as a widening credit crunch threatens to drag the economy into a recession.

Through it all, many banking companies have been hit with growing loan losses and declining investor confidence.

But the 95-year-old UMB has largely steered clear of the mess by insisting that borrowers already do business with the bank, have near-spotless credit histories, and can document sufficient income.

The bank is rapidly growing a home equity loan business that now totals $265 million, and is expanding commercial real estate lending, but rarely originates residential loans. Most commercial loans must be approved by committee. UMB generates more than half its revenue from asset management and other fee-based operations.

“Many banks have forgotten they are supposed to be good stewards for their depositors,” UMB President Peter deSilva said. “We know we’re the short-term custodian of other people’s money.”


In the past, such practices have failed to impress Wall Street investors, who demand innovation over plodding. But in the 12 months ended March 31, UMB shares rose 9.1 percent, compared with a 25.9 percent drop in the KBW regional Bank Index. Its stock has been trading around 23 times expected 2008 earnings, while peer banks have been trading around 12 to 14 times earnings.

Profit last year rose 26 percent to a record $74 million, or $1.77 a share, while revenue increased 10 percent to $521.5 million. Net charge-offs totaled just 0.21 percent of average loans outstanding.

Others banks like UMB that have eschewed exotic lending products and diversified their credit mix are also betting this is their time to shine.

“Those of us who have been very disciplined in our credit culture will benefit and certainly grow,” said Carl Chaney, chairman of the $6 billion-asset Hancock Holding Co, in Gulfport, Mississippi, another conservative banking company.

Analysts who follow banks have acknowledged that many investors are now being drawn to what seems like a safe haven of the most conservative companies. But without more rapid earnings growth and willingness to take on more risk, companies such as UMB, Hancock and others will continue to lack appeal for investors.

“The bull case (for such banks) is we’re not concerned about credit here,” Keefe, Bruyette & Woods bank stock analyst David Konrad said. “But you do pay management to take some risk.”

UMB’s Kemper counters that too many banks have taken risk to an extent that is “irresponsible and imprudent.”

“This is our time to shine,” he said. “We’ve been building this company just for times like these.”

Reporting by Carey Gillam; Editing by Eddie Evans