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Person Of The Year, Private Sector: Frank Stipes

Under Frank Stipes' leadership, Westernbank has distinguished itself time and again from other financial institutions


November 28, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

When he speaks, his motivational and oratorical skills lead some to mistake him for a preacher or a politician.

In addition to inspiring his colleagues--through such initiatives as bimonthly meetings with all managers and massive annual gatherings of

thousands of employees and their families--the CARIBBEAN BUSINESS Private Sector Person of the Year for 2002 has proved to be a masterful strategist in orchestrating the phenomenal growth of the financial institution he leads, Westernbank.

When in 1989 Frank Stipes became the CEO of the bank his grandfather Miguel Angel Garcia Mendez had founded some 44 years ago, Westernbank was a rather stodgy institution, albeit one with an unblemished record of profitable performance.

In fact, Westernbank is able to boast of a history of uninterrupted profits for every year of operations since it was founded. That makes it the only bank in Puerto Rico and one of the few, if not the only one, in the entire U.S. with such an outstanding record.

Stipes said he's always been guided by a desire to change not Westernbank's direction, but its destiny.

"There isn't just one thing that's the secret that explains it all," Stipes

replied when asked to explain what sets Westernbank apart from its sister financial institutions on the island. "It's a blend--a combination--of many things."

The achievements of Stipes and his team at Westernbank in recent years have been many, including:

Dominating the asset-based lending field following the May 2001 acquisition of Wachovia's former Congress Credit (since known as Westernbank Business Credit).

Turning the small personal loans world upside down with the simultaneous launching of 17 new Westernbank Expresso division branches in July 2002, growing its loan portfolio from zero to more than $100 million in less than five months.

Capturing the equivalent of the entire annual market growth (and) of the island's individual retirement account (IRA) market in both 2001 and 2002, blowing almost all its competitors out of the water.Consolidating islandwide leadership in commercial real-estate lending, and executing a series of strategic real-estate acquisitions of its own in order to complete its penetration of the San Juan metro-area market.

Despite the worries of underwriters, issuing what quickly turned out to be a stellar, oversubscribed $100 million common stock issue in July 2002, just when Wall Street was in the middle of one of the most grueling periods of the bear market.

This financial powerhouse, as it has been called by some, has had and continues to have an organic, or natural, growth rate in net earnings and total assets whereby it has virtually doubled in size every two to three years for the past 10 years.

As of Sept. 30, 2002, Westernbank and its parent, W Holding Co., stood as Puerto Rico's third largest commercial banking entity in terms of assets, with $7.9 billion in assets, a 54.4% increase compared with the $5.1 billion held on that date a year earlier. It has 48 full-fledged branches in Puerto Rico: 30 in the southwest (where it is the No. 1 bank in overall market share), seven in the northeast, and 11 in the San Juan metro area. For the first nine months of 2002, W Holding Co. reported net income of $60.6 million, a 32% increase compared with the $45.9 million reported for the same nine-month period of 2001.

Westernbank has been consistently recognized as one of the most profitable, well-managed, efficient, visionary, and market-leading financial institutions, one apparently possessed of a never-ending quest for excellence and market penetration in the sectors it serves.

"The truth is we have a highly talented team that excels where others fail, that questions what others accept and challenges the daily work routine by creating new products, new solutions to old problems, and new angles of perception to old views," said Stipes.

In essence, he added, Westernbank has evolved to combine the best of both the old and the new economy. "It makes money--not concepts or hot air—but cash, and has consistently been very profitable," he pointed out. In the concept of the 'new economy,' it is also one of the most technologically advanced, client-friendly, visionary, innovative, and intelligent banking alternatives in the world.

"Every day we raise the bar a little higher, we expect a little more, and we devote more of our efforts, our time, our energy, and the intelligence God has given us to make this company better, stronger, more efficient, and a true, live example of what is possible in the business world," said the charismatic chairman, president & CEO.

Differentiating factors

As Stipes indicated in an interview, the factors that help to differentiate Westernbank from its competitors are manifold.

For example, in an article entitled "Coddling the Customer" which appeared in the Spring 2002 issue of Banking Strategies magazine, Westernbank was singled out for its "extreme amenities" approach to clients.

Such amenities at Westernbank include complimentary valet parking, espresso coffee service at the new Expresso division branches, and customized, miniature counters for child clients. The bank's employees also periodically take professional etiquette classes.

Additionally, Westernbank's megabranches are almost a work of art, with bright, inviting tropical colors and motifs, distinctive furniture and office layouts, as well as ample parking and auto banking accommodations.

In terms of bank policies, Stipes said Westernbank is also unique in that--except for primary residential mortgage loans and credit cards with a $1,000 limit for line employees and a $5,000 limit for management-level employees--neither employees nor managers do any of their personal banking business with the institution.

Nor does Westernbank offer loans of more than $10,000 to management-level officials from other banks. It also, in effect, discourages lending to politicians or political candidates by requiring such people to submit their applications to the board.

"Westernbank has made it without any political favors or any accommodating practices," said Stipes with pride.

Not infallible

Stipes said that, obviously, neither he nor his colleagues are infallible, and he admitted to having made mistakes.

"The biggest ability I have is getting the best out of people," he said. "I may have been wrong in giving some people the opportunity, but that's been more than compensated for by those who have made the most of it."

Similarly, the bank's institutional moves aren't written in stone. "Look, we don't improvise; we study everything we do," said Stipes. "But should something not produce the results we expect, we aren't going to bang our heads against the wall; we'll just get out of it."

So far, however, Westernbank has apparently hit the nail on the head with respect to virtually every financial indicator and initiative it has recently undertaken. "What the competition can never copy is one's creativity and imagination," said Stipes.

For example, in 2001 Westernbank decided it was time to tackle the island's $2 billion and growing market of IRA deposits.

"During the past two years, we've pulled in over 31,000 new clients with IRA accounts," noted the Westernbank leader. "Socioeconomically, it's the best group you can get in Puerto Rico."

Westernbank's goal is to keep and cross-sell these new clients. "Our objective is to have at least five transactions with every one of them," said Stipes.

"Our view is that once you walk into a Westernbank branch, you aren't going to want to go back," he said confidently. "The experience is like, 'Am I paying for services elsewhere when I can get this?'"

He says the experience is similar for the Westernbank Expresso client.

"Expresso branches are smaller than regular Westernbank branches, but infinitely better than what the traditional small-loan shop client is accustomed to and better, by the way, than what the vast majority of regular commercial banking customers are accustomed to," said Stipes.

He noted the average personal loan at Westernbank Expresso, which currently has 20 branches, is just over $8,000. That is some $3,000 higher than the $5,000 loan limit offered by the other major small-loan competitors. Stipes said with Westernbank Expresso, Westernbank truly lives up to its motto as "the people's bank." "Here we are essentially reaching the unbanked population; the next phase will be to introduce them to other Westernbank products," he said.

Major moves in San Juan

Stipes said San Juan residents will increasingly take notice of Westernbank's prominent presence in key locations throughout the metropolitan area.

A $13 million remodeling of the former Hato Rey Tower--the financial district's tallest building--is underway. The building, purchased by Westernbank for $60 million last December, has been renamed the Westernbank World Plaza. It has become the headquarters of both the Westernbank Business Credit division and the Westernbank Expresso division, and is also slated to become the site of a 9,300-square-foot branch.

As a result of the acquisition, Stipes said he is selling the other Hato Rey property--next to the Inter American University law school--which had been purchased as a future branch site.

Stipes also revealed that next month, Westernbank will take possession of an entire block in Old San Juan, just across the street from the Covadonga bus station, which is currently partially occupied by the former Table & Chair store.

He projected the site will be home to Westernbank's Old San Juan branch by June 2003, making it the only financial institution in the Old City offering the convenience of auto banking lanes and ample customer parking.

Westernbank has also just purchased a one-acre lot in front of Banco Popular's operations center in Cupey. In 2003 it will be the site for the construction of another San Juan metro-area branch.

The bank is also negotiating for additional branch sites in the Condado and Isla Verde sectors.

Off-island growth potential

For now, Westernbank is entirely focused on the Puerto Rico market. However, there are rumblings opportunities for expansion elsewhere may beckon in the not-too-distant future.

The two principal areas for expansion for Puerto Rico financial institutions have been the neighboring U.S. Virgin Islands and the mainland U.S. While Stipes and his colleagues appear, at present, to have their hands full at home, Stipes clearly believes the Westernbank model can be successfully exported.

In fact, analysts at major New York investment banks have told him as much upon visiting with him and seeing the bank's operations firsthand.

Keys to success

"I truly pity those individuals who have to go to work every day without the enthusiasm, energy, and drive that is instilled in and felt by all of us who earn our livelihood and enjoy living and working at Westernbank," said Stipes.

As Stipes sees it, what frequently holds people back from enjoying more successful lives is a lack of vision and an excessive focus on short-term considerations.

"What I find to be consistently true of successful people is that they are the ones who truly take the opportunity--or give themselves the opportunity--to contribute the very best that is within them," he said with conviction.

Character, he said, is of utmost importance. "We don't do business with people who don't have character," said Stipes. "In fact, it is character that tends to generate money."

The economy

With regard to the economy, Stipes was the only banker interviewed by CARIBBEAN BUSINESS in early 2001 to unequivocally state--with what proved to be chilling accuracy--that a recession was underway.

At the time, he thought the recession would last 18 to 24 months, and that appears to be, in effect, what has happened.

"This last drop in the interest rates tells you the economy is still far worse than anyone thought it would be a year or so ago," Stipes remarked.

"If we're optimistic, we won't see an upturn until the end of the first quarter of 2003."

With elections coming up in 2004 both in Puerto Rico and stateside, Stipes said he thinks the recovery is more likely to be evident by the third or fourth quarter of 2003. While consumer spending has helped sustain the economy, he noted what is truly needed to get out of the recession is an upswing in production.

Frank Stipes: a lawyer, banker, and motivator

Frank Stipes didn't plan to be a banker. He studied economics and political science at the University of Puerto Rico's Mayaguez campus, and then went on to earn his law degree at the Pontifical Catholic University of Ponce.

He practiced law for eight years in his hometown of Mayaguez. "I loved what I was doing," he recalls. Among his clients was Western Federal Savings Bank, and Stipes recounts that during those years he would often offer suggestions about what the bank should be doing.

In 1988, Western's senior executive vice president of Westernbank called Stipes into his office to announce he was retiring after 26 years. "He told me that always giving suggestions and complaining is easier than being in charge," Stipes remembers. "He said he wanted me to be his successor and, if I didn't, I would never have the right to make another suggestion or complaint about the bank."

Stipes took the words to heart, and decided to make the move. "The first two years, I thought it was the worst deal I had ever done in my life," he says.

But gradually the changes he started to implement began to bear fruit. In 1990, the year he became chairman of the board, he changed the bank's name to Westernbank, the People's Bank.

He says the most gratification he gets is from seeing his colleagues truly flourish at what they do. "The biggest ability I have is getting the best out of people," he acknowledges.

At every level of the operation--from the reception officers to his fellow senior managers--Stipes is clearly proud of his team. "They are the most competent, brilliant, enthusiastic, and passionately committed professionals I have ever met," he says. "I am honored by their ethics, proud of their integrity, and inspired by their talents and devotion toward our clear goals and objectives."

Because of his extraordinary ability to motivate others to put their best talents to use, Stipes is frequently called upon to address student groups and up-and-coming business leaders around the island.

The many demands on his time at the bank sometimes force him to limit such activity. However, recalling an event earlier this year with young members of the Puerto Rico Chamber of Commerce, he says he himself always comes away encouraged from such encounters.

"We must truly analyze why we do what we do, and what we can contribute to effecting solutions and new outcomes," Stipes says.

"There's no problem that will withstand sustained thinking."

While he maintains his home base in Mayaguez, on average Stipes spends three days a week in San Juan. To stay fit, he jogs several miles a day. In his little free time, he enjoys spending time with his family (he has a grown daughter Valerie from his first marriage, and he and his wife Emilse have a two year old daughter, Mia Lucia).

Favorite hobbies include sports cars, yachting, and listening to jazz and classical music.

This Caribbean Business article appears courtesy of Casiano Communications.
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