independence day Bank of
independence day Bank of Michigan ventures out on its own By Vanessa Denha Garmo Four young entrepreneurs leading an investors’ group to take majority ownership of Farmington Hills’ Bank of Michigan (BoM) see the state’s lagging economy as a winnable challenge, not a threat, and an investment opportunity in a community bank as a way to take advantage of it. The quartet and their families will become plurality owners of BoM by purchasing 51 percent of its shares from Capitol Bancorp Ltd. (CBC), a Lansing-based community bank development company, if all goes as expected by the end of this month. The men are among a group of more than 150 new and original bank investors, most of whom are Chaldean. Once the transaction is complete, the bank will be 100 percent community owned. “There was a cloud hanging over the bank and now we can finally say the cloud is gone and that we can get back to the business of banking,” said Michael G. Sarafa, president and CEO (and a co-publisher of the Chaldean News). “This will make us a stronger and more viable bank and one that will be able to provide more services to the community. It also means that we should be more attractive in the marketplace, which will make it easier for us to raise capital and to offer more lending products.” Also significant is the plan to open a BoM branch on the Eastside in the 15 Mile and Ryan area as soon as the end of 2013. “This,” Sarafa said of the deal, “is a new beginning.” On Their Own “The most important aspect of the purchase is that it will allow BoM to avoid cross-guarantee liability associated with Capitol Bankcorp and other of its struggling affiliates,” said Sarafa. In other words, if Capitol Bankcorp and/or one of its affiliates failed, BoM’s assets could have been lost as well. That created a crippling atmosphere of uncertainly that kept BoM from growing while officials nervously waited to see what would happen to the ailing holding company. “We were told by regulators that we needed to get out and that time was short,” said Sarafa, a BoM organizer who helped open the bank in 2005. He, along with the board members, have been working on variations of a deal for nearly three years before this agreement, which is expected to be finalized in late July. BoM opened as a community bank partnered with Capitol Bancorp and several local investors. The Jimmy Asmar (left), Nick Sandiha and Saad Grewal talk business in BoM’s conference room. bank posted net income of 0,000 on gross operating revenues of .6 million and had total assets of nearly million in 2011. Net income before reserves was more than million. In contrast, several affiialtes are bleeding red and CBC’s failure is a real possibility. Becoming self-owned was essential to BoM’s future, observers said. “This offers Bank of Michigan an opportunity to truly become independent and position itself for a bright future,” said Elliot Stark, managing director at Headwaters MB, investment bank specialists for financial institutions. “They are able to avoid getting caught up in someone else’s troubles and grow the bank.” “Bank of Michigan’s focus on owner-occupied real estate and the board’s knowledge of that market and customer base has allowed the bank to avoid losses other banks have experienced,” said Patrick J. Gregory, managing director of UHY Advisors. Banking On It The bank purchase was led by businessman Nick Sandiha, his brothers and one nephew. The single biggest investor is Jimmy Asmar; the other two principals are Saab Grewal and Jordan Jonna. All are second-generation entrepreneurs involved in highly successful family-owned and -operated businesses The deal will not affect the management team led by Sarafa. The top five officers all have been with the bank for five to seven years and cumulatively have more than 100 years of commercial, mortgage and retail banking experience. As BoM’s CEO, Sarafa led the bank through the most recent recession overcoming regulatory and economic hurdles to allow the bank to post profits in three out of the last four years. Sandiha, 38, is a managing member of Keystone Capital Management and co-founder of BoM who currently sits on the bank’s board. He and his family own and manage many commercial properties and businesses in the Metro Detroit area. He and his seven brothers are the lead investors in BoM. “When we first helped organize the bank, we were very excited and confident about the bank’s potential, the opportunity and the positive impact we could have on our community,” said Sandiha. “Our board and management were able to successfully steer the bank through the recession. We have seen first-hand the potential of the bank and are looking forward to the next phase of this independent bank.” photos by alex lumelsky 20 CHALDEAN NEWS JULY 2012
Saving the Bank The story behind the story Additional office space is being prepared for BoM employees. Asmar, 32, has more than 15 years’ experience in real estate development, real estate management, construction management and quick-service restaurant industries. His interests recently expanded into private equity funding and full-service restaurants. His business ventures span five states and employ more than 1,600 people. A self-described perfectionist and workaholic, Asmar attributes his success to his mentor and father, Robert Asmar. Asmar is partners with Matt Prentice in the new Morels Restaurant on Northwestern Highway south of 14 Mile Road and recently announced the August opening of Detroit Prime Steakhouse to be located next door. The Asmar family is also one of largest and fastest-growing Little Caesars franchisees in the country. “Our family has always looked for opportunities to diversify our business investments,” said Asmar. “The team in place at the bank and the caliber of investors is at a level that gives us confidence to invest.” Jonna, 24, is a 2010 graduate of the University of Michigan who has immersed himself in A.F. Jonna Development, his family’s real estate business. His father, Arkan Jonna, founded the company in 1979. Jonna’s expertise in financial underwriting and analysis has contributed to the growth of A.F. Jonna Development over the past two years while focusing on distressed real estate opportunities. Jonna also is involved in several non-profit and charitable organizations. “I was 17 years old when the Bank of Michigan opened, and my father was one of the initial investors,” said Jonna. “My father has been sitting across the table from bankers for last 30 years, and now we have the opportunity to see the banking business from the other side. I am looking forward to personally being involved in the future success of the bank.” “Jordan represents generation Y, the most important demographic for not just Bank of Michigan but any bank’s future success,” Sarafa said of the youngest investor. “We’re hoping Jordan can help us understand that segment, what they expect and how they want to interact with their bank.” Rounding out the investors group is Grewal, 30, who been working in his family business, Singh Development, since 2009. Singh is a nationally ranked builder/developer involved in residential housing and commercial properties. The family launched their business venture in Southeast Michigan in 1973 with the development of their first subdivision and apartment community. Grewal oversees management of senior housing and multi-family and commercial portfolios at Singh. “My family understands the importance of small business,” said Grewal. “Our business philosophy has been based on relationshipbuilding, and the bank shares our commitment to that philosophy. Our investment reflects the respect we have for the other investors, the board and the management.” As Sarafa noted, the bank is ready for expansion and growth. BoM has purchased its attractive Cape Cod-style building on Northwestern Highway and is building out additional space to hire new staff. “This transaction will allow us to get back to the business of banking, helping businesses grow, reinvest and prepare for the realities of the new economy,” said Sarafa. “There could not be a better time for the Bank of Michigan to become independent and wholly owned by the community.” Michael G. Sarafa SPECIAL TO THE CHALDEAN NEWS In November 2009 a staff person from the Livonia office of the FDIC showed up in my office unannounced. This was unusual to say the least, not to mention nerve-racking. In his possession was a letter addressed to the Bank’s Board of Directors. It became known as the Section 39 letter, named for the part of the banking code that describes the equivalent of joint and several liability for bank holding companies and their affiliates with common ownership. I was completely unfamiliar with this part of the banking code as were most others. It is an arcane part of the law that had been barely employed over the years. There was very little precedent for how it would be used and what the potential consequences might be. In short, the government was putting us on notice that our holding company (CBC) might be on the hook for a failed bank in Florida and that, if they assessed the losses across the company’s affiliates, Bank of Michigan’s capital could be wiped out. Essentially it was an order for the bank to divest itself from CBC. Nearly 30 months later, a deal is in place to affect and accomplish this divestiture (see related story). But in those intervening weeks and months, there were some dark days and sleepless nights. A government order to cause CBC’s ownership stake to become less than 5 percent doesn’t mean it’s going to happen. Like any deal, you need a willing buyer and a willing seller, both of which eluded us for most of that period. The oddly unique thing about this episode was that so much of it was out of our control. The government wanted one thing, the markets another, CBC still another. There was no intersection of interests and the bank was trapped as a pawn in the middle of a chess game — the government using its Section 39 authority to essentially force the private sector dissolution of the company; CBC deploying a bank consolidation and sales plan to stay alive quarter by quarter. As of this writing, while CBC’s stock has been delisted and some if its remaining affiliates are on the financial precipice, the Florida bank has not been assessed and no other bank affiliate has failed. This fact defies the predictions by nearly every industry analyst, including some who advised us that CBC would not make it to 2011 as a going concern. One of these struggling affiliates is Michigan Commerce Bank, which now includes the old Oakland branch. As word spread about Michigan Commerce’s struggles, those familiar with the connection of our banks began to wonder about our viability. Soon rumors spread that the Bank of Michigan itself was in trouble, which, of course, was not the case other than for this potential cross-guaranty liability. In hindsight, it was almost a frenzied approach we employed to find a buyer and to get CBC to agree on a price that markets would support. Over those 30 months we used three different consultants and spent nearly 0,000 on investment banking and legal fees. We entered into a dozen confidentiality agreements, went through several rounds of time-consuming due diligence with potential suitors, and structured numerous variations of deals in an effort to get everyone to say yes. Only in the last two months did that happen. The deal is funded and executed but still subject to regulatory approval. It is now essentially in the hands of CBC and the government. When it closes, it will bring to an end a chapter in the Bank of Michigan’s history marked by uncertainty and stress. It will usher in a period of independence and autonomy. Most importantly, after nearly three years of playing investment banker and regulatory lawyer, we can get back to the business of running the bank. Our investors, customers and employees expect and deserve as much and we are looking forward with anticipation to the future. Michael G. Sarafa is president and CEO of the Bank of Michigan, and a Chaldean News co-publisher. JULY 2012 CHALDEAN NEWS 21
