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Bank Number 3, Signature Bank Collapses

Signature Bank the latest one to collapse was a New York-based full-service commercial bank with 40 private client offices throughout New York, Connecticut, California, Nevada, and North Carolina.  At the end of 2022, the bank had total assets of $110.4 billion and deposits of $82.6 billion and all seemed well. As of 2021, it had loans of $65.25 billion and again all seemed well. However, on March 12th, 2023, Signature Bank collapsed like a house of cards. It was closed down by the New York State Department of Financial Services. The bank which was unable to bolster its finances before Monday morning after customers began withdrawing their deposits or started a run on the bank.

The FDIC immediately reacted and took over as the bank’s receiver and immediately established Signature Bridge Bank, N.A. through which the FDIC would sell its assets to bidders. As of December 2022, 90% of $89 billion in bank deposits exceeded the maximum insured by the FDIC. All depositors are expected to be made whole. Holders of Signature Bank equity and bonds are highly likely to face losses. It all happened so quickly and ran so smoothly that it seems to me to have been a well-rehearsed operation.

Domino Number 3 Falls

Signatures sudden collapse follows the collapse of Silicon Valley Bank and Silvergate Bank. The apparent speed of the collapse shocked insiders. Following the SVB collapse Signatures exposure to crypto panicked investors and depositors who withdrew their funds or so the story goes. On Friday customers withdrew more than $10 billion in deposits. If that wasn’t a run on the bank, what was it? Is the domino effect of banking collapses now beginning to gain momentum?

The Signature Bank Story

Signature Bank was founded in 2001 by a former executives of Republic National Bank of New York following its takeover by HSBC. Signature focused on personal relationships with wealthy clients. For much of its short history it only had offices in New York City. In the late 2010’s, as other banks contracted, it began to expand both geographically and in its services including a 2018 decision to expose itself to the cryptocurrency business. By 2021, cryptocurrency represented 30% of its deposits. Banking officials in New York State closed the bank on March 12, 2023, just two days after the failure of Silicon Valley Bank (SVB). After SVB failed following the closure of the cryptocurrency-friendly Silvergate Bank earlier in the week, nervous customers panicked and withdrew more than $10 billion of Signature deposits.

Founding and Rapid Expansion

Signature Bank was founded by Joseph J. DePaolo opened on May 1st, 2001. DePaolo had left Republic National Bank of New York after its HSBC take-over  the previous year. Six branches were opened simultaneously across the New York City targeting wealthy clients and mid-market business managers with assets of $250,000 or more. The bank was set up as a subsidiary of Bank Hapoalim of Israel, which provided over $60 million in initial capital. Signature quickly grew to $950 million in assets by February 2003, putting it in the top five percent of US commercial banks. It quickly became profitable. The bank completed its initial public offering in March 2004 and began trading on the NASDAQ. From 2004 to 2014, its stock price rose by 650%. 20 years of unbroken growth followed before it collapsed like a house of cards. A 2014 article in Crain’s New York Business hailed Signature as “New York’s most successful bank“. Beware of financial journalism.

Signature Goes West

In 2018, the bank expanded its footprint and commenced operations on the West Coast opening its first private client banking office in San Francisco. DePaolo, who was previously reluctant to geographic expansion succumbed to its lure and opened Signature to new markets. In 2020, the bank continued expanding throughout southern California. In 2022 Signature opened an office in Reno, Nevada, and a West Coast operations center in City of Industry, California. Additionally, Signature began a private client banking operation in North Carolina. It looked like Signature had the Midas touch and could do no wrong.

The Lure of Cryptocurrency

In Signatures final years Cryptocurrency became its expansion focus when in 2018 it deciding to do business with the crypto industry. By 2021, more than 16% of its deposits came from the crypto currency sector, rising to 30% by February 2023. This was a very risky strategy and it gave Signature the image of being a “crypto bank”. In 2019, the bank had already tarnished its image and credibility in New York where several anti-Signature protests took place due to the mistreatment of tenants by Signature financed landlords who had received $16 billion in loans from the bank. Crypto, however was the proverbial straw that finally broke Signatures back.

Rats Leave the Sinking Ship

After the consistent growth of deposits, Signature started experiencing deposit outflows which were divided evenly between West Coast crypto clients and New York private banking customers. The bank responded by reducing its exposure to, and involvement in the crypto sector but the damage was already done to its credibility. On February 20th, 2023, DePaolo, the bank’s one and only CEO in its nearly 22-year history, like a rat leaving a sinking ship, announced his departure effective March 1st 2023. Banks everywhere are only as good as their reputations which are universally becoming more than suspect. It is a dying industry which is being consumed by the cancer of greed and deceit from inside. It will only take one straw to collapse any bank.



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