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International Bank of Miami is changing its name, geographic focus and branch strategy to give the institution a more domestic tilt beginning in January, moves it says are unrelated to a recent reprimand from federal regulators. The board of the 41-year-old institution has adopted a three-year plan to build a locally oriented institution with at least 11 branches in the tricounty area. The bank currently does a sizable business in Latin America and operates just two locations, its Coral Gables, Fla., headquarters and a Doral branch that opened in December. “We made the decision many years back that we wanted to change the profile of the bank,” said Alberto Valdes, chairman, president and chief executive of International Bank of Miami, which has $1.1 billion in assets. He’s emphatic that the move predates and is unrelated to disciplinary action taken against the bank last month by the Office of the Comptroller of the Currency. The bank settled regulatory charges that it violated anti-money laundering rules and agreed to take a number of steps to improve compliance. The bank has until Dec. 18 to make a number of policy changes to bring itself into compliance with the Bank Secrecy Act, Office of Foreign Asset Controls rules and the USA Patriot Act. The consent order severely restricts the bank’s operations and requires International Bank to not reopen its Capital Markets Group that served as a broker-dealer in emerging market debt primarily from Latin America and the Caribbean. The order also requires the bank to submit a three-year plan that details its revised strategy. The plan must include projections and an explanation of how the goals will be met. It must also include “an action plan to compensate for the loss of bank earnings resulting form the termination of the operation of CMG (Capital Markets Group),” according to the consent order. Although Valdes insists the move to becoming more of a domestic bank has been in the works for years, it is part of the three-year plan the bank will submit to regulators. Valdes said that for the last six years, the bank has been building a stronger domestic deposit base through a South Florida network. The board decided to reduce its heavy foreign exposure in the years after the 1998 Ecuador economic crisis. The bank, which is controlled by investors in El Salvador and Colombia, had some $30 million in loans in the country at the time, Valdes said. The bank did not lose any money on its loans in Ecuador, he said. The bank’s risk tolerance for foreign loans dropped even more with Argentina’s economic problems in late 2001 that prompted that country’s leaders to devalue their currency and freeze all bank accounts. International Bank of Miami was forced to charge off some $13 million of loans, causing the bank’s profitability to plummet in 2002. The bank has since been able to recover about 75 cents on the dollar for its troubled Argentine loans, compared to the 20 cents to 30 cents on the dollar that many lenders accepted in the midst of the economic crisis, Valdes said. Unlike the privately held International Bank of Miami, many publicly traded banks rushed to sell off their Argentine loans in order to minimize the loss on their quarterly results, he said. “If you can charge them off and put them out there and get rid of them when the market settles down, you are able to get a better price for them,” Valdes said. “That is what we did. We are seeing that now.” Since the late ’90s, as the economic picture in Latin America remained bleak, Valdes worked to increase local deposits and loans. Valdes said the bank’s loan mix has changed such that domestic borrowers now account for about 88 percent of borrowing compared to about 15 percent in the late ’90s. The bank has also reduced its foreign loans outstanding to about $70 million from $300 million during the same time period. And it has almost eliminated its correspondent banking with foreign institutions. The new strategy to position the institution to compete as a local bank will cost between $2 million and $3 million, Valdes said. This does not include the cost of opening new branches, which typically cost about $1 million to start. The bank’s owners began considering the name change after market research found that its current name would be a liability in its effort to expand as a domestic institution, particularly outside of Miami-Dade. As a result, the bank hired a branding company to propose a new name with a more domestic feel. One option is to buy an existing bank with a good reputation and adopt its name, just as First Union did when it purchased Wachovia Bank. “The International Bank of Miami was a wonderful name and is still a very wonderful and respectable name,” Valdes said. “But as we move more and more into the domestic side, we think it will be in our best interest to have a different calling card.” International Bank also wants to lessen its dependence on foreigners that account for about 70 percent of the bank’s $903 million in deposits. He said the bank hopes to maintain its foreign deposits and simultaneously increase the level of domestic deposits so the ratio is more balanced. One way to attract local deposits is to establish a stronger local presence in key business centers throughout the tricounty region. The bank wants to open nine branches in the next three years, focusing on Miami-Dade County in 2005, Broward County in 2006 and Palm Beach County in 2007. “We want to open at least three branches in Dade County next year and then we will go into Broward,” he said. Valdes said the bank is looking at locations on Brickell Avenue in Miami, Pinecrest, Palmetto Bay and Miami Beach. International Bank will continue to serve small and medium-sized business and professional service firms with sales of less than $20 million, providing them commercial mortgages and business loans. The bank hopes to convince business owners and executives to open personal accounts. The bank’s ideal consumer client is seen as a couple that makes at least $100,000 annually. He said the bank has focused on providing commercial real estate loans, primarily for apartment complexes that were converted to condominiums, and business loans. THE DILEMMA Just as it is more difficult to turn a battleship than a speedboat, experts question whether an institution of the size of International Bank can transform itself quickly enough to succeed. “When you are at $1 billion already, it is more difficult to make a change because of the size and scope of the organization,” South Florida banking analyst Ken Thomas said. “It is more difficult when you are a $1 billion bank to make a wholesale change in their strategic plan.” International Bank faces a dilemma because it will have to undergo a costly effort to resolve the OCC violations while at the same time finance its strategic shift that will likely impact revenue. They will have to accomplish that and satisfy regulator’s demands for heightened capital reserves. Plus, the OCC has the final say on all major policy decisions made by the bank’s board, according to the order. It’s unclear how much it will cost to comply with the order, but the document suggests that regulators don’t expect the problems to be fully resolved until 2007. The order mandates that International Bank keep above-average capital levels on hand until at least Dec. 31, 2006. Banks operating under far-reaching consent orders such as that of International Bank should consider a merger with a larger institution, bank experts say. A buyer with an established reputation for compliance could satisfy regulators much faster. “I think the OCC would be happy to see somebody come in and buy a bank with a cease-and-desist order,” Thomas said. Valdes rejects the idea of selling his stake in the bank and walking away. Valdes said he and the other five shareholders are united in wanting to build the bank by reinvesting earnings. “I enjoy what I do,” said the 57-year-old Valdes, who has been a banker for 34 years, including stints with Citizens and Southern International Bank in Atlanta and First American International Bank in Miami. “I am not ready. When I get to retirement [age], we’ll talk then. In the meantime, where do I put my money other than here? Put it in a money market account at 2 percent? You got to be nuts.” Even if Valdes and the other five shareholders wanted to distance themselves from the institution, the OCC order prohibits them from selling their shares before January 2007 without regulatory approval. Except in certain circumstances, regulators typically refuse the request of a disciplined bank to merge, open branches or add lines of business. If regulators sign off on Valdes’ plan, International Bank could become a rare exception to these norms, although under close scrutiny from the OCC. If Valdes and the other shareholder decided to sell, their regulatory problems would make a sale less lucrative. It would fetch a lower premium than other South Florida banks recently acquired, said Gene Katz, a vice president with the investment banking firm of Hovde Financial, which evaluates institutions and advises them on mergers. Unlike other billion-dollar institutions based in South Florida, International Bank lacks the local borrowers, depositors, reputation and locations that an acquirer would need to justify paying premiums similar to those fetched by other local institutions, Katz said. Besides the small local network, the bank also has the characteristics of a wholesale bank in that it relies on relatively few large clients for its deposits. Potential buyers would be concerned that those customers could easily move their money elsewhere. The number of potential suitors for International Bank is limited by the institution’s foreign-market focus that many deep-pocket buyers don’t want or understand, Katz said. “The problem is, if you wanted to sell a bank focused on international in Miami, you have a very finite group of buyers” that tend to be foreign, Katz said. “I would say that most if not all domestic institution would have little or no interest in an institution of that type.”

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