Thinking Vertically

By Evan Sparks

In an economy as big and diverse as America’s, there’s room for all kinds of banks—and there’s a need for all kinds of banker expertise. Many banks have developed tailored industry verticals to channel that expertise toward business growth.

For example, Huntington Bank, a $104 billion regional bank based in Columbus, Ohio, is building a new nationwide vertical to provide specialized banking services to technology, media and telecommunications firms. TMT, as the sector is known informally, is a broad category of capital-intensive large and middle-market businesses that include semiconductors, software and hardware, technology services, digital broadband, cable, video, wireless, cell towers and data centers.

TMT is going through rapid innovations such as 5G wireless and the internet of things, as well as consolidation within and across sectors—and that transformation requires creativity on the paret of the bankers who serve these businesses. “I think the market’s receptive to new banks within TMT,” says Scott Webster, the head of the TMT group at Huntington. “These clients tend to be very sophisticated. They’ll certainly take your balance sheet, but they’ll reward you for ideas and thought generation, and that’s what we intend to do.”

And while a bank like Huntington leads with the balance sheet, Webster says, “we have a very broad suite of products here and it’s one of the things that attracted me to come to Huntington to build out this practice.”

Another opportunity for banks with an industry vertical is the opportunity to grow beyond the bank’s core geographic footprint in eight Midwestern and Appalachian states. “We obviously have a very attractive footprint that exists today at Huntington, and we will look to be very active and continue to, as the bank does in general, continue to focus and penetrate that footprint,” explains Webster. “But what’s nice about this industry for Huntington is it provides the opportunity to grow outside the footprint as well”—and that can fuel potential growth opportunities for other units of bank down the road.

Building a new vertical from scratch has its challenges, among them staffing up—”this is a greenfield build for Huntington,” Webster notes—and doing the hard work of reviewing bank policies to ensure they meet the needs of industry sector customers. “We are looking at our credit policies as they exist today and figuring out where we may need to make potential requests for specific TMT subsector policies,” he says.

But it’s in that process of tailoring policies and procedures where a bank’s industry vertical can deliver customized service that stands apart. A standard credit policy might preclude arrangements that in TMT would be considered low-leverage.

“Take towers, for example. That’s a business where you’ve got contractual, predictable revenues and cash flows under long-term leases with quality tenants in AT&T and Verizon who have cell sites on the towers,” says Webster. “That’s a subsector that can handle more leverage. You’ve got companies that are trading at 19-20 times EBITDA. So to limit your leverage to three by four is too constraining.”

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Evan Sparks

Evan Sparks is editor-in-chief of the ABA Banking Journal and vice president for publications at the American Bankers Association.