Jay Sidhu, a young Indian man, decided to backpack through Afghanistan, Iran and Western Europe, with only a hundred dollars. He got to London and returned.
The same adventurous spirit led him to the United States to pursue an education with a limited budget. Sidhu wrote a book more than half a century later about his experiences, which led him to two successful banking careers over a period of five decades. Sidhu's book, "Never Ever, Ever give Up," is about his experiences and what he has learned.
The book is published at a time of tremendous growth for Customers Bancorp (NYSE CUBI), and Sidhu recruited his son Sam to be his successor. Daughter Luvleen is the head of BM Technologies, a fintech spin-off.
Sidhu spoke in a recent interview about the past and present of Customers. He also discussed the recent turmoil within the banking industry, and the reasons he chose to write a new book.
The responses were edited to lengthen and clarify.
What were your expectations when you purchased what became Customers Bank in 2009
We said that our business banking strategy would be high touch and high tech when we launched Customers Bank. For consumer banking, we said that it should be digital banking with a low-touch approach. However, the technology must still be capable of doing the same things as a human would do in a branch for the customer. This becomes part of our self-assessment strategy. That was what we needed. Then we began building a business banking. This business bank is now a $20 billion-dollar bank, which was beyond my expectations. I never thought that we would be this successful in just 10-12 years.
We would keep growing and adapting to the external environment. This would allow us to stay ahead. Build your infrastructure before you grow. This is something I absolutely believe. Greed can be so tempting, and is often the main reason why businesses fail or individuals do not do well. They don't remember their values. Risk management should never be ranked second or third. You can't put it second or third. You should never place the temptation to achieve a high share price on a short-term basis -- I call this greed -- before sound banking practices. I'm not a person who is always able to achieve rapid stock prices. We do eventually succeed. We are looking at a longer-term view because we always emphasize risk management and growth over maximization of profits. I think that maximization of profit is not a good trait for the banking industry, because our business is risk management. Maximizing profitability is a sign that you're not managing your risk properly. You're going to extremes.
It would be great if we could reach $10 billion in 10-12 years. We've exceeded that amount, but are still being prudent.
What are your thoughts on the current state of banking and its future?
The external environment is constantly changing. The external environment is changing very rapidly.
To their internal infrastructure and to the external environment are experiencing difficulties. The ones who ignore it completely are those who are dead.
Do you believe that the banking crisis, which began in March when Silicon Valley Bank and Signature Bank failed and was continued this week with First Republic Bank's failure, has been contained?
I believe it is controlled. But [bankers] have to master their internal environment, and they've got adapt and pivot to the external one. I'm willing to share my concerns with you about the external environment of tomorrow.
The interest rate is my first thought. Do not expect rates to drop in the second half this year. The Fed has stated that it will not lower rates until they've conquered inflation. There are some signs, but they're not certain that the Fed has controlled inflation. They are therefore betting on a rate reduction in the second half this year. I'd caution you against making that assumption.
If this doesn't occur, commercial real estate, retail offices, and office buildings will be under stress next year, and in the years following. Why did I say "next year" and "the year after?" Commercial real estate loans for office buildings and shopping centers are typically fixed-rate loans that last five years. Those that were made three or four years ago, when interest rates were at their lowest point. Many people were locked in at that time. If they refinanced them today, the rate would be 6% or even 7%.
Rents are going up in retail establishments. Are people looking for retail space and chasing it? There are clouds on the horizon, indicating that a commercial real estate crisis could occur.
How did Customers recover from a huge stock drop in March and have the bank's deposit increase during the first three months?
Wall Street investors assumed we operated similarly to Signature, Silicon Valley and Silvergate because we had a digital strategy. Customers Bank is different from any other bank because we have a completely different approach. We are a bank that is forward-thinking and has a strong risk management. I've seen many crises in my 50 years as a banker. You need to prepare for cyclicality, which isn't going anywhere. It is easy to group banks together, and individual companies are not given much attention at the moment. It was because of this that we were placed in this category. I bought a half-million-dollar-worth of stock the day the market crashed [and] when our stock was also crashing. This was done to show people that we were different. We have a strong culture of risk management and are willing to adapt to changing environments.
What do you want your customers to be like in five years?
If the company has a market cap of between $3 billion and $4 billion, we would like to see it between $25 billion and $300 billion. Multiplying this by 10 or 12, you get a market capitalization of $3 billion to $400 billion. Currently, our market cap is between $675 and $700 million. You are aiming to make five-to-seven times as much money in five years. This is what we believe would happen. This kind of return is possible over time for shareholders. I am one the largest shareholders in Customers Bancorp and I think that is what our company can achieve.
You can only get these earnings if you have a strong risk management and a strategy that is clear to attract raw materials, which is what we do. Loans are what you need to do after you have processed the raw materials and turned them into products. You need to ensure that raw materials are not being taken from you, and they continue to arrive. This is called managing your liquidity. You need to ensure that you are paid when you sell anything. Credit risk is what it's all about. You have to ensure that your revenue will be higher than your raw material costs. This is called positive operating leverage. It's a fancy word. Simple approach to business. This is important. Risk management is what you do.
You have to be consistent and take a long-term view. You also need to realize that the external environment will not slow down. You have to be able to control your environment, and that means you need to stay on top of the external environment. How can you manage that if your direction is unclear? Clarity of vision is what you need. You have to start there. You got to do a self-assessment.
Why did you choose to write this book?
I thought it would be an excellent opportunity to give something back. I strongly believe in the importance of education and a life based on values. It's impossible to be a good leader without being a great person first. There are many parallels in what I think of as a successful professional life and a great human life. It's for this reason that I have divided life into four basic principles, and success in business into four fundamental principles. They're both the same.
I will take 100% of the proceeds to offer my services as a speaker to youth in any part of the country, at my expense or the expenses of my company. We are all in this together. We hope to reach 500,000 youth in America with my story, beliefs, encouragement, and financial scholarships. We will use any money we earn to provide financial aid to those who cannot afford to attend college, like myself.