In the midst of the biggest economic crisis in 80 years, featuring the largest number of bank failures in more than a decade, a handful of people have decided that the best thing to do right now is open a new bank on Long Island.
"This is one of the best businesses you can start now," said Steven Schnall, who is taking over the troubled Golden First Bank in Great Neck and restarting it as Quontic Bank. Schnall, 42, founded New York Mortgage Trust in 1992 and ran it until 2007.
He will start with $12 million in capital after buying the bank. Its existing bad loans will be sold, leaving Quontic with a clean balance sheet, Schnall said in the home office at his six-story house in TriBeCa.
His enthusiasm for starting a new bank is matched by that of others who have done the same thing in the past couple of years. Some are veterans of other banks, and some, like Schnall, come from other industries, but all agree that the banking industry's difficulties are an opportunity for them.
In part, that's because new banks are, by definition, unencumbered by a legacy of bad loans. As a result, they're able to be conservative and still extend credit when some more established banks can't.
In addition, for those able to make loans, this is a good time to do it, bank officials say. Real estate values are low and likely to go up, lessening loans' riskiness. And because interest rates generally are low, the difference between what banks charge on loans and what they pay in interest on deposits is especially profitable.
Still, there likely will be fewer new banks on Long Island in the next few months. It takes months to raise the necessary capital and clear regulatory hurdles, and most of the newest banks were in the works before the economy crashed.
"You probably will see few come on line in the next few years," said Daniel Murphy co-chairman of Merrick-based Madison National Bank, which opened in 2007. Regulators are scrutinizing new banks more closely than ever, he said.
Indeed, Thomas O'Brien, president and chief executive of the State Bank of Long Island, said the new banks could have a tough time ahead of them.
"It's a very tough business," O'Brien said. "By design, you lose money the first few years."
Employees have to be paid, and until a bank makes loans - and gets back interest on those loans - it has little income, O'Brien said.
But the chief executives of Long Island's six new banks remain optimistic. More than half of them are profitable or expect to be soon, and several of them are already opening new branches and planning for more.
"Anyone who's got the doors open is doing a good job. They had to have a good foundation" to withstand tougher regulation, said Robert Lang, president of Hanover Community Bank in Garden City Park one of the new ones. "They're going to flourish."