Robert Gecht is fond of saying that he looks like a stereotypical banker: bald and partial to dark suits, preferably Armani, on his trim 5-foot-7 frame. He hopes customers find his mien reassuring.
And the mustache?
“That’s old school,” explained Gecht, 57, chief executive of Albany Bank & Trust Co. in Chicago. “Young bankers don’t have any hair; they wax their chests.”
Heading out to his silver BMW 535xi, Gecht grabs a couple of toasters stamped with the bank’s logo that he will give to clients.
“I’ve been doing a lot of calling on customers lately,” he said. “They’re concerned about the economy.”
Albany Bank has four branches, and nearly all of its loans are in Cook and the collar counties. “Our rule is if we can’t drive there in a day, we’re not lending,” he said.
Albany has lots of rules, which could be one reason why it’s the only Chicago bank with an A grade from TheStreet.com. It rates banks based on their capital, earnings, asset quality, stability and liquidity. There are only a dozen such banks in Illinois, and one rated A-plus, the $103 million-asset First National Bank of Dwight.
At a time when some much larger banks have been ravaged by the financial meltdown, in part because of freewheeling lending practices, Albany Bank stands in stark contrast. Run conservatively, it’s a throwback to the era of small-town bankers who lend money to local business owners they know.
Albany’s style may sound quaint, but it’s easy to see the benefit in the midst of a global banking crisis. Indeed, while other institutions are withering or afraid to lend, Albany is on the prowl, from considering “terrific” opportunities in commercial paper to potential acquisitions of troubled Chicago-area banks.
A day tagging along with Gecht, who opens and responds to his mail himself and answers his own phone, provides an inside look at the inner workings of a small but efficient bank where 17 languages are spoken, including Albanian, Assyrian and Serbian.
“We’re no different than the hardware store,” he said. “We buy money for one price and sell money for a higher price.”
Gecht said the commercial paper market has seized up because traditional buyers, such as banks and money market funds, lack liquidity. “But we have a substantial amount of cash,” he said, which allows the bank to take advantage of higher interest rates because there are fewer potential buyers for the short-term IOUs.
Albany Bank recently snapped up commercial paper from Toyota Motor Corp., which Gecht considers “a strong company,” as well as General Electric Co. and American Express Co. Albany’s investments are rated at least AA, and its investment portfolio is diverse.
“Banks thought they were diversifying their portfolio because they were buying different kinds of mortgages — some prime, some Alt-A, some subprime — but they were all mortgage transactions vulnerable to a drop in housing prices,” Gecht said.
Unlike some banks, Albany steered clear of preferred stock in Fannie Mae and Freddie Mac, two government-backed housing entities that went belly up in September. Such investments would have violated Albany’s practice against buying equities.
“When people said they were buying it, they’d say, ‘It’s not an equity; it’s like a bond,'” Gecht said. “I’d say, ‘It might look like a bond, but you’re buying an equity, and equity means you can get wiped out.'”
Albany’s capital level far exceeds regulators’ “well capitalized” threshold.
“There’s no credit crunch at Albany Bank & Trust,” Gecht said as he headed to a weekly loan committee meeting on the second floor of the bank at 3400 W. Lawrence Ave.
Besides Gecht, five senior lending officers and two board members attend. The 90-minute session provides a glimpse into how the bank is navigating the credit crunch, which began in the summer of 2007 and intensified in September:
*The bank has foreclosed on two apartment properties, representing $1.2 million of its $440 million in loans. One owner is trying to work things out, and Gecht leaves open the possibility of withdrawing the foreclosure suit.
“We want to reward good behavior,” he tells the loan officer. “Shine the kind and benevolent light of Albank on her.” The good news: She is still paying the utility bills. “That’s my kind of lady,” Gecht said.
*That week, Albany Bank repossessed a 2002 Mitsubishi, valued at $1,200, the only vehicle on its books. The borrower “left it at the airport before he went back to Poland,” Gecht explained. “A lot of people came over here to work in construction, but those jobs have disappeared.”
*Only one loan is 90 days or more past due, and the bank’s “watch list” of loans, those in which their has been a change in the borrower’s circumstances, is less than one page. On the watch list is a family-run restaurant whose owner recently died unexpectedly.
“The wife and kids have taken over and are doing a great job,” but are dragging their feet about sending financial data that the bank has requested, Gecht said. “Send them a letter telling them that we’re a regulated industry and get them to give us the financial information.”
Albany’s bread and butter is family owned and operated businesses, some with sales as high as $250 million. “Most work out for us, but our friends at the beauty parlor aren’t returning our calls,” Gecht said.
*Another worry is rising vacancy rates at strip centers to which Albany Bank has made loans. Many remaining tenants seem to be surviving month to month. And, with the stock market plunge hurting 401(k) plans of would-be retail entrepreneurs, filling empty storefronts is going to be a bigger challenge for Albany’s retail development borrowers.
“Some of our developers who do small shopping centers have been having trouble renting,” Gecht said.
Banks would do well to remember that they’re lenders, not partners, in business ventures, he tells the committee. Aside from interest payments, they don’t share in the upside of a project, so why should the lender take unnecessary risks? he said.
“Sometimes, banks forget that,” Gecht said.
After the meeting and lunch at Noon O Kabab, a restaurant that’s a client, Gecht drives to Arway Confections Inc., a family-owned candymaker at 3425 N. Kimball Ave. and an Albany client for more than 30 years.
“These are substantial customers of the bank, and I always like to visit with them and say, ‘How are things going?'” Gecht said.
“I’m going to bring them a toaster just to make sure they have one,” he said as he parks his car on a side street and walks into the 75,000-square-foot plant, whose products include chocolate-covered nuts and fruits and malt balls.
Arway never borrowed until five years ago, when owner James Resnick sold the company to his stepson; Albany Bank arranged the financing. Resnick is semi-retired, but he remains active at the plant and makes daily deposits at Albany.
“We were always self-financed, which tells you how conservative we are, so when you look for a bank, you want one that thinks like we do,” Resnick said. “When we do need money, we know it’s there for us.”
Still, Resnick worries whether some Arway customers won’t pay their bills after the holidays, even though the candy company generally doesn’t lose any money to bad debts.
“We’re very busy right now, but we’re sensing that people are getting nervous,” Resnick said.
In a conference room, Resnick asks why banks aren’t lending to each other.
“Because you’ve got banks like WaMu and Wachovia and others, and banks are worried they might not get their money back,” Gecht said.
Albany Bank has excess funds daily, Gecht added, and noted that Albany sold $30 million in extra money that day to JPMorgan Chase, its correspondent bank.
“That’s what federal funds are, the interbank lending,” Gecht said. “The only reason I sell to JPMorgan is because I know JPMorgan can pay it back tomorrow because it’s due tomorrow.”
Gecht also said his bank doesn’t sell off mortgages.
“We sell off nothing,” Gecht said. “If your idea is, ‘I write it, but then I sell it off so it’s someone else’s problem, and I get paid every time I sell it off,’ then I create a powerful incentive to put together junk.”
Gecht returns to Albany Bank at around 3 p.m. He signs off on some raises for Albany’s 100 employees and prepares for an annual exam from the Office of the Comptroller of the Currency.
Albany’s return on average assets, an indication of how efficiently assets are employed, was 1.14 percent in September, down from 1.19 percent in September 2007, Gecht said. According to the Federal Deposit Insurance Corp., the average return on assets fell to 0.86 percent in 2007, compared with 1.28 percent in 2006.
Albany Bank’s loans charged off as bad debt, were non-existent in September. Albany has always required borrowers to personally guarantee their loans. “They can hand us the keys to their condo project, but they had better hand us their house keys and their car keys too,” Gecht said.
Non-performing loans, or loans that are past due at least 90 days or not accruing interest, represent 0.33 percent of the bank’s loan portfolio, essentially flat from 0.31 percent in September 2007.
Industrywide, 1.39 percent of loans weren’t current at the end of 2007, the highest percentage since the third quarter of 2002, the FDIC said.
But Gecht is aware that Albany Bank’s numbers could take a turn for the worse.
“We’re watching the current situation carefully because we’re seeing some clients in distress,” he said. “Banks can only do as well as their clients.”
Robert Gecht
Job: Chief executive and largest shareholder of Chicago-based Albank Corp., owner of Albany Bank & Trust Co.
Age: 57
Background: Harvard College graduate; law degree and a master’s in business administration from the University of Chicago. Spent a year at a Massachusetts Institute of Technology think tank before returning to Chicago to practice law for two years. Began banking career as a loan workout specialist at Amalgamated Bank in Chicago.
Family: Married to a personal chef; two daughters.
Bloodlines: Gecht’s uncle is Eugene Heytow, former head of Amalgamated Bank of Chicago. His brother-in-law is Richard Rieser, who in 2006 sold First Oak Brook Bancshares Inc. to MB Financial Inc.
About Albany
Financials: Assets of $525 million as of Sept. 30. Deposits of $448 million, up $25 million year to date; $10 million has come in the past two months.
History: Martin Gecht, Robert’s father, headed an investor group that in 1977 bought the bank, which at the time had $80 million in assets. The elder Gecht, also a dermatologist and art collector whose works ranged from Edgar Degas to Mark Rothko, was its longtime chairman; he died three years ago.
— Becky Yerak
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byerak@tribune.com
