Regions Shares Sink As Bank Shakes Up Risk Management Team

Shares of Regions Financial Corp. (RF) fell Tuesday after the bank shook up its risk management team late Monday, spooking investors who may now be wondering if there are more problems with the bank's financials than previously thought.

Bill Wells, the top executive in charge of keeping track of the bank's risk exposures, resigned while the head of credit-risk, Michael Willoughby, retired and Tom Neely, head of problem-asset management, also left. The Birmingham, Ala., bank said in its release the moves were "not the result of any determination with regard to additional problem loan migration, loan loss reserves or charge offs."

But that didn't fully ease concerns for investors who watched the bank's uncollectable loans climb in the third quarter. Shares Tuesday were recently down 8.1% to $5.70 and earlier dropped as low as $5.56, the lowest they've traded since early January. The shares are now down 21% over the past three months of trading.

"It's alarming to investors," Sandler O'Neill analyst Kevin Fitzsimmons said of the move, which was announced with little explanation and without an immediate full-time replacement for Wells. "At a minimum, the risk management is probably not going better than expected. ... Investors very quickly jump to 'Will the company have to raise capital?'"

A Regions representative wasn't immediately available for comment. The bank is scheduled to make a presentation at 3:25 p.m. EST Tuesday at the Bank of America Merrill Lynch Banking and Financial Services Conference in New York.

Regions had said last month nonperforming loans and charge offs rose in the third quarter, a discouraging sign for the bank given many of its competitors have reported the opposite trend. Analysts were also somewhat worried about the steeply discounted sale of $1 billion in troubled loans, which exacerbated the quarter's loss, making it bigger than the Street had expected.

But given the lack of disclosure with Monday's announcements, analysts said it was unclear why Wells was no longer employed, but that it could have been a result of those losses. Some also wondered if the move was possibly driven by banking regulators, unhappy with the way Regions had been handling its risk management.

Regions remains under stricter regulation than some as it has yet to repay the government aid it received under the Troubled Asset Relief Program.

Christopher Mustacio, analyst at Stifel Nicolaus, said the "sweeping changes" indicated at the very least it was Chief Executive Grayson Hall who wasn't happy with the management.

But while the past results were discouraging, analysts also wondered if the coming quarters might now include higher markdowns driven by a new chief risk officer who would want to clean house immediately instead of spreading out bad news.

KBW analyst Jefferson Harralson said Regions can't afford higher writedowns or reserves like some of its competitors, and said he is concerned the move will delay Regions' ability to turn a profit. Harralson warned if Regions doesn't turn a profit by the third-quarter of next year, it could face a writedown on some of its $1 billion in deferred tax assets.

-By David Benoit, Dow Jones Newswires; 212-416-2458; david.benoit@dowjones.com

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