PrivateBancorp logs loan losses on CEO Richman's watch
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(Crain’s) — Larry Richman can’t blame PrivateBancorp Inc.’s bad loans only on his predecessor anymore.
A big increase in delinquent loans and writeoffs of bad loans reported by the fast-growing Chicago-based bank surprised Wall Street on Monday and led to a steep sell-off in the stock, which closed down nearly 40%.
For the first time in the two years since Mr. Richman, the former LaSalle Bank CEO, took over the much-smaller PrivateBancorp and attracted more than 100 lenders from what was Chicago’s leading business bank, some of the loans now going bad were generated by the current lending team.
Of the $184 million in loans that were classified as seriously delinquent in the third quarter, about 40%, or $73 million, were originated after November 2007 when Mr. Richman was named CEO, the bank disclosed during a conference call with investors. Of that $73 million, $37 million came from PrivateBancorp’s participation in larger loans originated by other banks, a portfolio that has raised concern among investors that PrivateBancorp has less knowledge of those borrowers.
While PrivateBancorp has recorded a profit in only two quarters since Mr. Richman took over, all of the considerable loan losses until now were attributed to borrowings that occurred under the watch of founder Ralph Mandell, who remains chairman of the holding company.
That’s given investors comfort, even as PrivateBancorp’s bad commercial real estate loans have mushroomed during the economic crisis. That comfort is gone now.
“We’re beginning to see a few signs of cracking in the new armor,” said Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. in Chicago.
And loans from the old PrivateBancorp still are going bad. To date, writeoffs plus delinquent loans have equaled about 14% of the old PrivateBancorp’s $3.75-billion loan portfolio, says Peyton Green, an analyst at Sterne Agee Group Inc. in Nashville, Tenn.
“That’s as bad a performance as we’ve seen at any live bank,” he said. “Most banks like that have failed at this point.”
But the old PrivateBancorp didn’t have access to capital like Mr. Richman does. PrivateBancorp, which has $12 billion in assets, plans to raise another $175 million in common equity, the bank announced Monday, a half-year after raising $217 million.
Bank executives led by Mr. Richman sought to reassure investors that their growth plan was on track despite the third-quarter setback. “Make no mistake: The company has been transformed,” Mr. Richman said, adding that the bank is continuing to grow, albeit not at the torrid $1-billion-a-quarter pace of last year.
They also sought to dispel investor concerns about their $1.6-billion portfolio of larger loans in which at least two other banks are participating, saying those deals aren’t mainly for far-flung clients but to firms that have done business with Mr. Richman and his crew in the past and are making deposits or buying other services from PrivateBancorp.
But investors clearly were alarmed by the big loan losses, which led to a third-quarter net loss of $23.9 million, or 62 cents per share. In addition, the new common equity will further dilute existing shareholders.
While the equity raise was expected to occur in the near future, the worry now is that it’s happening to absorb future losses rather than to fuel more loan growth and augment earnings, Mr. Cardenas said.
The bank said to expect more loan losses in the fourth quarter, although probably not at the same level as the third quarter.
PrivateBancorp shares closed down $7.11 Monday, a $37% drop to $11.89.
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