UPDATE: Regions Shares Sink On Risk Management Team Shakeup

Regions Financial Corp. (RF) Chief Financial Officer David Turner said Tuesday a decision to shake up the risk management team of the bank was made by the company in reaction to slow improvement in credit losses, not forced by regulators as some had been speculating Tuesday.

Turner, making a presentation, said Chief Executive Grayson Hall and the board of directors made the decision when they didn't feel credit losses were being improved fast enough.

"It's been slower than we wanted, slower than our board wanted," Turner said while speaking at the Bank of America Merrill Lynch Banking and Financial Services Conference in New York. "Our pace of change needs to pick up."

Earlier Tuesday, the company's shares plunged after the bank made the move 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."

Turner said the team in place now will be able to handle the risk on the interim basis and added that he believes Regions could have a new chief risk officer in place by the end of the year. He said the board already has a short list, including one candidate who already is an early favorite.

That appeared to help ease investors concerns slightly, as shares, which had earlier fallen sharply, ended the session down 4.5% at $5.92 while Turner spoke. Earlier the shares fell as low as $5.56, the lowest they've traded since early January.

"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?'"

Regions had said last month nonperforming loans and charge offs rose in the third quarter compared to the prior year, a discouraging sign for the bank given that 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, as 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 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.

In his presentation, which started when shares were down about 7%, Turner also said Regions has strong capital and liquidity that would meet the tough new regulations proposed. He also said the bank is dedicated to continuing aggressively cutting troubled assets and had sold around $60 million since the end of the third-quarter. It has contracts to sell another $40 million, Turner said.

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

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