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October 15, 2009 in Business, City
Sterlings’ new execs say situation “manageable”
A day after Sterling Financial Corp.’s longtime leaders were ousted, the company’s new executives say they’re confident subsidiary Sterling Savings Bank can raise $300 million and meet other demands contained in a government cease-and-desist order disclosed Thursday.
The order from the Federal Deposit Insurance Corp. and Washington Department of Financial Institutions capped a series of recent damaging Sterling reports of mounting loan losses, dividend suspensions, and steps towards issuing new stock that would further depress shares once worth more than $34. The bank has 60 days to raise the $300 million.
Shares closed Thursday at $1.29 on heavy trading volume.
Greg Seibly, acting chief executive officer of Sterling Financial and Sterling Savings, said turnaround plans are in place. Ongoing Sterling operations are healthy, he said; the challenge is working through loans made before 2007 on now severely depressed real estate and construction projects, he said.
“This is a situation that is manageable,” Seibly said.
Sterling and its financial adviser, Sandler O’Neill, have received positive feedback from potential investors, he said.
But Matthew Clark, an analyst with Keefe Bruyette & Woods in New York City, said investors can choose among several Northwest banks also in need of capital. Sterling may not be the most attractive proposition, he said.
As of June 30, Sterling reported $787.5 million in non-performing assets. Total assets were $12.4 billion, making Sterling the largest commercial bank based in Washington.
“It’s very difficult to manage down the magnitude of problems that exist at Sterling,” Clark said, adding that he had estimated the company might need as much as $400 million in new capital.
Besides imposing several conditions for the raising and maintenance of capital, the agreement cites Sterling directors for their inadequate oversight of bank operations, and orders them to more actively supervise bank affairs.
Late Wednesday, the board announced the appointment of a new acting executive team lead by Seibly and Chairman William Eisenhart, and the departures of co-founder and long-time Chairman Harold Gilkey, as well as Heidi Stanley, chairman and CEO of Sterling Savings Bank.
In filings made Monday with the U.S. Securities and Exchange Commission, Gilkey reported he had surrendered 125,000 of Sterling stock options. He owns almost 380,000 shares.
Stanley surrendered 75,000 options. She owns 86,000 shares.
Neither Seibly or Ezra Eckhardt, bank president and Sterling chief financial officer, are members of the board. They said they had no personal knowledge of the negotiations that produced the agreement with regulators.
“We acknowledge the criticisms we received,” Eckhardt said. “It’s not unique.”
Seibly said terms of agreement are much like those the FDIC has imposed on struggling banks all over the United States.
“The Pacific Northwest was late to the downsizing of the economy, but when it came, it came sharply,” Seibly said.
Fourteen Washington banks have received cease and desist orders this year, including another Spokane bank, AmericanWest Bancorporation. The FDIC has taken over three banks, all in Western Washington.
Clark said terms of the Sterling order were among the harshest he had seen, particularly the deadlines, but he noted that the FDIC has been flexible where officials see a good-faith effort to comply.
He said new investors would be taking on the risk with the potential to double, even triple, their money if Sterling officials turn the bank around in a few years.
Eckhardt, whom Clark called “a rock star,” said Sterling has moved away from an asset-based business plan focused on real estate and construction lending, to one that will rely more on traditional banking relationships and selling customers more financial products.
There are no plans to trim the bank’s 175-branch, five-state network, or its 2,050 employees, he said.
Sterling has a major presence in downtown Spokane, with 228,500 square feet of office space and more than 600 employees.
Deposit growth will be a more important fundamental in the future, Eckhardt said.
He said growth so far in 2009 has been good — up 4 percent year-over-year as of June 30 — which will allow the bank to offset the departure of brokered deposits that earned higher interest rates, and regulator condemnation.
“We’re really focused on being a back-to-basics community bank,” Seibly said. “Our goal is to be the best that we can be where we are.”
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spokanada on October 15 at 10:55 a.m.
First the government gives them a bailout and now a cease and desist????
zelda on October 15 at 11:05 a.m.
What really interests me is the part of the C&D order that says Sterling “had engaged in violations of law and/or regulations.” What exactly were those legal or regulatory violations?
Funny how the compelling reason for every business decision in this country since the mid-90s has purportedly been “increasing shareholder value,” but shareholders are at the bottom of the creditor list in bankruptcy court. I’m sure certain individuals will do nicely as a result of this mess, but it won’t be those who bought the stock.
Cassie on October 15 at 11:33 a.m.
What really interests me is the part of the C&D order that says Sterling “had engaged in violations of law and/or regulations.” What exactly were those legal or regulatory violations?
Agreed, Zelda. Hopefully follow-up reports from the SR will address this.
zelda on October 15 at 1:57 p.m.
Don’t look for it here. Whatever details emerge will be covered by the Journal of Business, Inlander, P-I and Seattle Times.
How many times have we been assured by bank execs that everything is just fine only to find out that the complete opposite is true? Wa-Mu springs to mind.
The deposits are insured by FDIC but shareholders get the shaft.
MTguy on October 15 at 9:10 p.m.
Standard language for these things….many more C&Ds to come. This bank is doing the right things to work through this and will come through fine.
Rifleman__Dodd on October 15 at 10:05 p.m.
$1.29/share down from $34. Might be worth picking up a hundred shares. While it can WaMu on us, the Feds are eyeballing them very closely and holding their feet to the fire. I’m not so sure of the “rock stars” in place to drive this ship, just as long as it isnt aground.
zelda on October 15 at 10:18 p.m.
The ones doing the “right things” are the FDIC and state regulators. It’s their job to step in and protect depositors.
And what happens to that sterling board of directors? Aren’t they accountable along with the chairman and the CEO?
CheckingItOut on October 21 at 7:39 p.m.
You really should find out the facts before making irresponsible comments and insinuations. As a customer AND shareholder, I did, and have absolutely no concerns about my accounts or stock. I am, however, buying more shares! This is a bank with a strong community presence and thoughtful response, and is sure to come out of this stronger.
Do you know how many banks operate with C&Ds, some even for years? There are more than 20 in Washington State alone! (Go look at the FDIC website.) Is it really a ‘bailout’ when you pay back the money? Do you see them blaming the economy or regulators, or do you see them owning the issues?