Gaining Currency

How did Laredo-based IBC become one of the most profitable banks in the country? By doing exactly what its competition wouldn't.

In 1966 the sleepy, remote border town of laredo was not the first place you would have picked to start a bank. The town had chronically high unemployment, no manufacturing, and scant retail business. It was just a river's width away from a Third World country with even fewer economic prospects. Ever since 1840, when it became the capital of the ill-fated Republic of the Rio Grande, whose first and only president was executed by a firing squad after a year in office, Laredo had remained a poor, isolated place.But that year Antonio R. Sanchez, Sr., who owned a store that sold typewriters and other office equipment, and a few friends decided to start a bank anyway, a tiny institution called Bank of Commerce-Laredo. The idea was to do what the local banks, which preferred to lend to big ranchers, would not: make loans to small businessmen on both sides of the border. It was supposed to be a bank for the little guy. If there was one thing Laredo had plenty of, in 1966, it was little guys.

As it happens, Typewriter Tony, as the newspaper called him, had a knack for spotting hidden assets. He later bought land leases on property that turned out to be part of one of the biggest natural gas fields in the United States. Profits from his gas wells made him hundreds of millions of dollars. And 35 years after he co-founded his little-guy bank, the International Bank of Commerce, as it would later be called, has grown into a border-straddling, multibillion-dollar behemoth that dominates South Texas. The bank—now controlled by other members of the Sanchez family, including his son Antonio R. "Tony" Sanchez, Jr., a likely gubernatorial candidate in the 2002 election—is the largest economic entity in a booming city of 195,000 that has become one of the great entrepôts of the Western Hemisphere. Some $65 billion in commerce poured through Laredo last year, and IBC had its fingers in much of that business. With nearly $6 billion in assets and 105 subsidiaries and branches, the largest minority-owned bank in America rules the border.

But IBC has done more than just ride the NAFTA-driven wave of commerce. It has prospered by doing things that few other banks are willing or able to do. One is to make loans to the Mexican American community along the border—one of the poorest parts of the United States and a place most other big banks avoid like a recession. The other is to finance trade in the corridor between Monterrey, Mexico, and San Antonio, a place where IBC's history and growth, far from the mainstream of American finance, have given it an overwhelming competitive edge.

IBC is unusual for other reasons as well. It is a throwback, in fact, to an idealized era of American banking, in which clichés from Frank Capra movies come to life—a world where ordinary people can talk to the chairman without an appointment, where your credit is as good as your character, where bank officers are deeply entwined in the social and philanthropic networks of their communities, where all business is personal, and where, as chairman Dennis Nixon says, "We are local bankers in a world of global banking." Perhaps the most astonishing thing about the bank—considering the general poverty of the area in which it operates—is that it is hugely profitable. According to BankInvestor magazine, IBC's performance from 1994 to 1999 placed it third among America's top one hundred publicly traded banks. In addition to everything else, IBC is a cash machine.

What Tony Sanchez, Sr., saw back in 1966 was something simple: trade, and lots of it, in Laredo's future. He was right. After 1987, when Mexico first began lowering tariffs on imported goods, commerce between the U.S. and Mexico rose rapidly. So did the bank's fortunes. Even though most of the goods that pass through the city are headed elsewhere, Laredo plays a key role in their distribution. To handle the merchandise carried by eight thousand trucks a day, there is a whole subworld of warehouse companies, freight forwarders, customs brokers, trucking firms, distribution companies, repackagers, labelers, and sales agents on both sides of the border. These companies, which are the main reason Laredo is now the second-fastest growing city in America behind Las Vegas, need financing and other bank services, and this is what IBC does best.

Life on the edge of the Third World wasn't without its risks, however. In 1982 the entire Mexican financial system crashed, and the unemployment rate in Laredo soared to 30 percent. Then there was the great Texas bust of the eighties, which wiped out most of the indigenous financial institutions. Between 1986 and 1992, 562 Texas banks and 229 savings and loans went under. In fact, IBC and San Antonio-based Frost Bank were the only major Texas banks that remained independent. And in 1994 the border was hit hard again by another Mexican recession and peso devaluation.

Through all of this economic turmoil, IBC not only did not have a loss in any year but also never had a losing quarter. "These were very difficult times for us, very hard," says board member Tony Sanchez, Jr., who, along with his father, acquired a controlling 30 percent interest in the bank in the seventies (his father passed away in 1992). "We were able to weather the storm even though a lot of our loans were not doing well and some of our clients were in terribly difficult times. These were relationships we had built over time, and we stuck with them." The loyalty paid off. By the time the big boom in Mexico-U.S. commerce came after the signing of the North American Free Trade Agreement, in 1993, the bank had, as Sanchez says, "thousands of long-term clients on both sides of the border. We were the dominant player with dominant relationships."

In the early nineties, IBC expanded into the Rio Grande Valley. It also acquired banks and branches in San Antonio,

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