Magazine article American Banker

Business Begins to Pick Up for Calif. Banks

Magazine article American Banker

Business Begins to Pick Up for Calif. Banks

Article excerpt

Howard B. Levenson knows plenty about the community banks of California.

His San Diego-based Western Financial Corp. has been creating markets in small-bank stocks, and helping banks raise capital, since the early 1980s.

Last month, Western Financial helped pull off something that battered Southern California hadn't seen for years: the successful sale of common stock by a healthy bank. The deal raised $4.3 million for Valle de Oro Bank, a growing San Diego institution.

Mr. Levenson cautions, however, that the state still has a long way to go before it fully recovers. Excerpts from a recent interview follow.

Q: With the worst of the recession apparently over, what should community banks be working on with their stocks.

LEVENSON: Liquidity of their stock has become much more important. In California, unless a bank is owned by an individual, its stock is freely traded. Only it's so thinly traded that a real market doesn't develop, or a lopsided market develops.

From the investors' standpoint, liquidity is desirable because it allows them to sell a stock when they want. From a bank standpoint, if there ever comes a time when you need to sell more stock or raise capital, you'll be glad you developed liquidity beforehand.

Q: What's wrong with the CEO trading shares out of his desk, as its done at thousands of community banks?

LEVENSON: I think it creates a conflict of interest and it's a mistake. Who's to say the CEO isn't giving preferential treatment to friends of his who want to buy stock. The banker spends more time trying to be a stockbroker than a banker in a lot of cases.

Besides, there's no need for it any more. Many [securities] firms will provide workout markets. We have a list of buyers and sellers and we try to match them up. Fortunately, most small banks in California do it that way.

Q: With all this liquidity in California small bank stocks, why aren't more small investors buying the cheap stocks? …

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