The Cuba Journal sat down with David Seleski, CEO of Stonegate Bank, after his return from the historic flag raising ceremony in Havana on August 14th. The ceremony was one of many recent milestones in the brick-by-brick dismantling of the five-decade-old economic and ideological wall that has divided Cuba and the United States.
Recently, Stonegate Bank garnered a great deal of media attention for being the first US bank since the 1960 embargo to conclude a correspondent relationship with Cuba’s Banco Internacional de Comercio S.A. (BISCA). Stonegate also took over domestic banking functions for the Cuban embassy after M&T Bank decided to exit the relationship.
A South Florida regional bank with $2 billion of assets (a small bank by any definition) is not a likely candidate to be pioneering cross-border banking relationships between the US and Cuba. When asked how a small bank took a leadership position in a clearly competitive space, on the commercial frontier, David simply explained, “It was the right thing to do.” His simple answer belies a sharper view of a small bank aiming to stand out amid tight regulatory strictures and competition in the South Florida market.
Judging by asset growth and stock performance, Stonegate Bank (symbol: SGBK) is by no means suffering. Since August 30, 2010, the bank’s stock has appreciated approximately 108% while maintaining a modest dividend. And the bank enjoys generally positive coverage from bank analysts.
Despite Stonegate’s successful strategy to grow by acquiring smaller banks over the last five years, small, community-based banks as a group have suffered disproportionately since the 2008 financial crisis. According to a recent Harvard University report, from 1994 to 2014, community banks’ share of U.S. lending was nearly halved, from 41% to 22%. At the same time, market share of the five-biggest banks has more than doubled.
Stonegate Bank’s Cuba play is closer to the bank’s key strength than meets the eye. Relationship banking – as opposed to transaction- and volume-based banking practices employed by the big banks – is what is needed to nurture a foothold in a risky country like Cuba. According to David, the bank has two full-time employees working on the Cuban project, and his personal involvement carries the advantage of swift decision making in a murky regulatory environment – a key advantage not afforded larger banks.
David believes two near-term factors are important to making an impact in Cuba – and ultimately improving the lives of Cubans. First is the prospect that other US banks will join Stonegate in putting down roots in the island nation. Second is the ability for foreign travellers to use credit cards. Payment friction in Cuba’s important tourism industry alone is a major headache for travelers and property owners alike. Today, the only option is cash.
Media reports suggest the credit card processors are sorting through the technical aspects of transaction processing on the island. The bigger issue, according to David, is the need for a liability carve-out that ensures that processors and banks will not run afoul of the various restrictions imposed by US law. Thus, the major hurdle is not with Cuba but rather with US regulations.
Some restrictions, such as those contained in the Helms-Burton Act of 1996, are unique to Cuba while others apply to any bank’s foreign activity. Recent amendments to the OFAC & BIS rules using Obama’s executive authority symbolize a policy of normalization but fall short of clarifying definitive boundaries and potential collisions amid the web of rules and restrictions related to Cuba.
David describes his crafting of Stonegate Bank’s first mover status in Cuba as though he were putting spin on a ball with comfortable precision. His enthusiasm for the visible changes he sees taking place with average Cubans expresses a directional view squarely on the side of progress and future promise. Only time will tell if his first bite of Cuba’s forbidden fruit is a tasty one.