As the future of banking goes, so goes Buffalo. Or so it seems.
That was not the mantra of the past century in blue-collar Western New York, where steel manufacturing, autos and heavy industry ruled the roost.
Indeed, it's radical thinking for a gritty Rust Belt city better known for unionization, heavy machinery, big industrial facilities and hard-working laborers.
But as times have changed, so has Buffalo. Today, two of the biggest private employers in the region are banks, and over 24,000 people are employed in financial services activities overall, making it a significant part of the local economy.
"It's an important industry to Western New York from an employment point of view," said M&T Bank Corp. President Mark Czarnecki.
Morever, the jobs pay much more than the average salary across the board in Western New York -- $55,750, versus $40,120 -- and the finance and insurance sector is generating more than 10 percent of the region's economic output, up from 8.6 percent in 2001.
"It's just the latest iteration of what has been a real strong, stable economic driver for the region," said First Niagara Financial Group CEO John R. Koelmel. "The financial services industry has been a good steady foundation, a good building block to stabilize in the best as well as the tougher times."
And continued growth is expected, as banks and insurance companies in high-cost markets like New York increasingly look to places like Buffalo as lower-cost hubs for data centers and back-office operations.
"Western New York seems to be positioned very well," said John Slenker, economist at the New York State Department of Labor. "So I would see that continuing for the area."
"Buffalo is on the radar screen like never before," said John Boyd, a corporate site selection consultant in Princeton, N.J. "We project a number of projects to be looking at Buffalo in the years ahead."
Against heavy odds, Buffalo has emerged as a banking hub and operations base for regional companies as well as national and international financial services giants.
Major cities like Philadelphia and Denver have no major bank headquarters, and Minneapolis, Charlotte, Cleveland and Pittsburgh have just one each.
Yet Buffalo has two of the nation's top 25 banks based here and growing -- M&T and First Niagara -- and arguably remains the primary operating headquarters for the U.S. subsidiary of one of the world's largest, HSBC Holdings Plc, even though that bank moved its legal headquarters and a few top executives to New York.
"To have M&T and ourselves headquartered here, two top 25 banks, is a bit unique for little 'ole Buffalo, [but] probably no different than having the Bills and the Sabres here," Koelmel said. "You wouldn't expect two prime-time players."
"Buffalo is a very important regional financial center, and its community will benefit from having headquarters," said Beth Mooney, CEO of Cleveland-based KeyCorp. "It is critically important to local economies."
Driven by a historic legacy of banking, as well as a stable market, a loyal workforce and low operating costs, the city and region are seen today not only as an attractive place for banks to do business but also to maintain big facilities and jobs.
"I think very highly of Buffalo and its people and quality of life," said Robert G. Wilmers, longtime M&T chairman and CEO. "They're hard-working. They're industrious."
Named the 2011 'Banker of the Year' by the financial industry newspaper American Banker, Wilmers is widely considered the dean of Buffalo's banking industry.
Several factors are at play in the region's financial emergence. Boyd cited the low-cost of office space and industrial land, enabling companies to buy enough land to not only accommodate future growth but also provide a physical security buffer. Utility costs also are low, compared to some other parts of the Northeast, and he cited Yahoo!'s decision to locate its data center in Niagara County as another reason why companies are paying attention.
"Yahoo is known for making very smart selection decisions," he said. "It's realistic to think that other companies will look at Buffalo more favorably because Yahoo is there."
Additionally, the state has become more attractive because of moves by Gov. Andrew M. Cuomo to improve the business climate and rein in the state budget without raising taxes. His recent pledge of $1 billion in economic development money for the region turns a bright spotlight toward the city.
"That was a big deal, and Gov. Cuomo is thought of favorably by a lot of clients and site-seeking corporations," Boyd said. "He's not like his father. He doesn't have a reputation of being hostile to business."
>Cluster effect at play
Western New York not only hosts retail branches of M&T, HSBC Bank USA, First Niagara, KeyCorp, Bank of America and RBS Citizens -- all now among the nation's 40 largest banks -- but it also houses significant administrative and support functions for five.
And it's home to national customer service and corporate banking operations for Citigroup and J.P. Morgan Chase & Co. -- neither of which have branches here -- and for auto insurer Geico Corp., not to mention a host of collections firms and other financial businesses.
"It's absolutely attractive to people who are back-office operators," said David Nasca, CEO of Evans Bancorp in Hamburg. "You have back-office and call center and collection kinds of firms that have highly trained financial employees."
That has essentially created a "cluster" effect, where there's enough critical mass that employers in a single industry know they have a deep pool of local talent to draw from.
"It allows you to find people to come work for you who live here and have experience in the industry," said Czarnecki. M&T employs 5,200 here.
That has given the financial sector a prominent place in Western New York's past, and its future, as it transitions from a manufacturing economy to one based on services.
"We're committed and betting that Buffalo has a very bright future, and we were willing to stake our claim on that based on the investment that we put in," said Gary Quenneville, Western New York district president for KeyCorp, which has spent millions of dollars building nine new branches, hiring business lenders and enabling its national contact center in Amherst to handle more work.
A recent study by Boyd's firm found that the operating costs of a data center in Buffalo are comparable to those of many smaller cities in the Midwest that are now being eyed by banks. "The competition for Buffalo is small markets in the Midwest," he said. "That's really the direction of the industry."
The strength of the local banking industry is rooted first in tradition. Banking isn't new to Buffalo, although it long played second fiddle to manufacturing and shipping, which thrived with the Erie Canal and then the Industrial Revolution, continuing into much of the 20th century.
Yet the city has a rich tradition of banking since the 1800s, when Buffalo Savings Bank, Marine Bank of Buffalo, Erie County Savings Bank and Manufacturers and Traders Bank were formed to help merchants, traders and manufacturers.
All four grew and prospered well into the late 20th century, eventually becoming Goldome Federal Savings Bank, Marine Midland Bank, Empire Federal Savings Bank and M&T Bank. Goldome and Empire both collapsed in 1991 with the savings and loan crisis, but not before they became two of the largest thrifts in the country.
The region's banking success is not just limited to the city, either. Warsaw-based Five Star Bank's predecessor, Wyoming County Bank, dates to 1865, while First Niagara's predecessor, Lockport Savings Bank, was founded in 1870, and Dunkirk's Lake Shore Savings Bank formed in 1891.
Upstate New York's culture and conservatism have proven a perfect fit for banks. In contrast to the high-flying markets of the Southeast and the Southwest -- the so-called "sand states" of Florida, California, Nevada and Arizona -- Buffalo and upstate New York have been considered slow-growth, or even no-growth, markets.
"This is a tough environment, and the bankers here are battle-tested," Nasca said. "They learned how to negotiate a slower, no-growth market in tough economies. They are conservative and prudent bankers, and as a result, they haven't done the kinds of things that you've seen in other major markets. They know what works."
Instead, banks here grow gradually, largely taking market share from each other. However, they've also been assured a certain degree of stability in deposits and loans.
"Buffalo is the kind of town where Key's relationship strategy really resonates," Quenneville said. "People here are hard-working. They want good value for their dollar. They're interested in not being a transaction, but being a relationship."
So while it hasn't been as attractive to outsiders in pursuit of big profits, it has given banks like M&T, HSBC and First Niagara a solid home base from which to grow elsewhere. And since the region didn't experience a real estate "boom," it also didn't suffer a "bust," putting Western New York banks in position to not only survive the worst financial crisis and recession in 80 years, but also to thrive.
In fact, M&T and First Niagara have been among the few banks of any size that have grown through acquisition in the past few years, snapping up banks in Pennsylvania, Maryland Delaware and New England.
And First Niagara is growing again with the purchase of 195 branch offices from HSBC, as the London-based bank is getting out of the retail business in upstate New York. KeyBank is buying 26 of those branches in the Buffalo Niagara region from First Niagara to satisfy regulators concerns. Both deals are expected to close later this year.
>The back-office bonanza
Western New York has become appealing as a place for banks to base large operations and significant numbers of employees, even if the work they're doing isn't for the local market.
"The things that we see as attractive here would be attractive to others," Czarnecki said.
Companies cite a loyal, dedicated and well-trained workforce. "We really have great people. We have hard-working people, and they're highly engaged," Quenneville said.
There's also an abundance of colleges and universities from which to draw new and educated employees, and a desire by political leaders and schools to work with companies. M&T, for example, runs three sophisticated training programs using graduates from those schools, while Citigroup teamed up with University at Buffalo on specialized curriculum and Geico has partnered with other schools.
"For the last 20 to 30 years, this has been not only a front office for us but a great back office for the rest of the country, and over time it has turned into a great back office for the rest of the world," said Paul B. Cronin, regional president for commercial banking at HSBC Bank USA. "It's the educational framework here... the fact that we have a good core of people."
"It seems to be a win-win for the community, for our customers, for the school," said Steven W. Cunningham, regional vice president and general manager for Geico's service facility.
Taxes are high, Czarnecki said. But that's outweighed by lower real estate and operating costs, including for power, that "compare favorably to many places in the country," he added.
"We have a great workforce that has a lot of experience, that's very committed to M&T and has a very strong work ethic. There's a great series of colleges and universities here that allow for us to continue to hire," Czarnecki said. "Put all that together, and it's a very attractive place to do what we do."
Additionally, executives cite the city's geographic location, including easy access to other major metropolitan areas, particularly the financial centers in New York and Toronto.
"Buffalo is really at the crossroads of a lot of things," Quenneville said. "It was just very well located and situated to become a hub, and I think these banks grew up out of that."
And the Western New York lifestyle makes it appealing and easy for executives and employees to stay once they're here.
"Coming here as a transplant, and having lived in all four corners of the state, I've seen for myself why people would want to live here and do business here," Quenneville said.
"I haven't heard anybody that comes here and doesn't like it," said Geico's Cunningham, who previously worked on Long Island and in Virginia.
KeyCorp maintains one of its two primary national "customer contact" centers here, employing more than 400 people who not only answer phones, but also respond to emails from customers and monitor the Internet and social media for potential customer problems.
The Cleveland-based bank, whose other contact center is in its hometown, also has some support groups there for other national units. In all, it has about 1,000 employees here.
"We made a pretty considerable investment in the call center to make it up to the standards that we need," Quenneville said. "We have a very efficient workforce, very reliable, and plentiful."
Bank of America, the nation's No. 2 bank by assets, maintains a facility in West Seneca that handles credit card and consumer loan collections, as well as some small business underwriting, with 650 jobs.
It also has a 130,000-square-foot mortgage servicing center in Amherst's CrossPoint Business Park, with about 800 employees handling servicing, collections and loss mitigation work. Overall, it employs about 2,000 in Western New York.
Citigroup, which had 21 branches in the Buffalo and Rochester markets until it sold them to M&T, still has about 1,500 workers at its two-building corporate banking, capital markets and global transaction services operation, also in CrossPoint. The sophisticated facility, one of three worldwide for the global bank, handles more than $1.4 trillion in U.S. funds transfers daily, and is directly linked to the other facilities in Singapore and Dublin, Ireland.
And J.P. Morgan Chase & Co., which offers middle-market business lending locally but no branches, employs 800 at a 130,000-square-foot, 24-hour national telephone and online banking service center in Albion. It's the largest employer in Orleans County. Finally, Geico came here in 2004, opening up one of only a dozen national service and support operations nationwide in Amherst. The facility, which handles the insurer's sales, service and claims for customers in New Jersey and New England, has been steadily ramping up its employment to 2,200 now.
"When you look at the people we've added, we are extremely happy with the caliber of people. The workforce is just so much superior," Cunningham said.