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By Marshall Eckblad
NEW YORK (Dow Jones)--It's getting awfully easy for Joe DePaolo to convince big-name talent to join his small regional bank.
As CEO of Manhattan-based Signature Bank (SBNY), DePaolo recently set out to recruit four teams of veteran bankers from large rivals during all of 2009.
It's only August, and DePaolo's already landed 10.
Bankers and consultants alike report a quiet and ongoing migration of seasoned talent away from the nation's major banks and into the calmer offices of smaller regional lenders. DePaolo's recent hires left the likes of Toronto-Dominion Bank (TD), and even crosstown giants Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM)
The growing attraction of small-bank employment points to the ongoing strife at the largest U.S. financial firms, many of which are beset by failing business models, soaring losses from bad loans and intense government scrutiny that continues to shift on the fly.
The trend also mirrors the growing exodus of disaffected top-tier investment bankers to boutique firms.
"Taking jobs at small to mid-sized banks has become the hot thing to do," says Jeanne Branthover, a managing director with Boyden Global Executive Search. "Regional banks can finally...attract talent that would never have looked at them before."
The strategy gives smaller firms a crack at picking off large rivals' clients, says Jeff Davis, senior analyst at FTN Financial, a unit of First Horizon National Corp. (FHN). That's because business customers are notoriously loyal to their bankers.
Signature, which has 22 offices in the New York metro area, has virtually raided the ranks of what was once North Fork Bank, a former 350-branch Long Island lender. More than 80 North Fork alumni have moved to Signature since Capital One Financial Corp. (COF) agreed to purchase North Fork last year.
Other smaller regional banks have landed big-bank talent, including Nashville, Tenn.-based Pinnacle Financial Partners Inc. (PNFP), which has $5 billion in assets and 33 offices across its home state.
Pinnacle's CEO Terry Turner says it often takes years to woo recruits, but the recent industry turmoil "has shaken them loose."
In July, Pinnacle hired Harvey White, a 28-year veteran of Regions Financial Corp. (RF), as chairman of the bank's Knoxville business unit. Regions, which has 1,900 branches in 16 states, has been rocked by troubled commercial loans tied to overheated housing markets.
"He was thrilled to come to work at a company of our size," says Turner. (White had briefly retired from Regions before joining Pinnacle.)
The poach-and-grow strategy has driven impressive growth at both Signature and Pinnacle, even as most big banks have shrunk in size and written fewer loans.
Signature's loan book grew 42% during the last year and Pinnacle's grew by almost 16.9%.
Pinnacle recently posted a loss from souring residential construction loans, which are hammering large regional lenders. But most analysts expect Pinnacle to work through those issues efficiently.
Unlike many big-bank rivals, Pinnacle and Signature can boast to recruits that they've virtually washed their hands of the U.S. Treasury's Troubled Asset Relief Program.
Signature quickly re-paid $120 million in public support it had accepted last year, and DePaolo says he's the first bank CEO to call TARP funding a "scarlet letter" for banks. (JPMorgan's CEO Jamie Dimon is widely credited for inventing the analogy.) Pinnacle plans to return its $95 million in taxpayer funding shortly.
A number of big banks, including Regions, SunTrust, Citigroup and Bank of America Corp. (BAC), accepted billions in TARP funds and have since faced withering government scrutiny. Their plans for repaying TARP are fuzzy, at best.
Small banks' cultures offer other departures from Wall Street-style banking.
Signature's main office is in the heart of New York's Fifth Avenue shopping district. But it's nestled in an office tower, floors above the children's store Build-A-Bear Workshop, and its constant drift of tourists and toddlers.
"The Build-A-Bear," says DePaolo, "is paying all the rent."