Under pressure: Financial struggles in Philly and an SEC settlement in Wilmington
Lincoln National lost billions, and Republic Bank is still fighting over its leadership. But a Wilmington Trust case came to a close.
Financial companies in the region are under pressure as interest rates rise and the economy slows — though a federal court settlement reminded us things were worse in this key sector not so many years ago.
At Lincoln National Corp., billions gone
Lincoln National Corp., the Radnor-based insurer and investment sales giant whose sponsorship of the Eagles stadium has made it a household name in the region, isn’t doing as well as the 8-0 team: The company lost one-third of its stock market value Thursday after the company surprised investors by posting a massive $2.6 billion loss for the three months ended Sept. 30.
On Wednesday night, the company, in its quarterly report, projected expected higher future expenses from old life insurance policies and guarantees but said it still had plenty of capital to cover claims, while continuing to spend on new sales and technology. "
In an investors call Thursday, chief executive Ellen Cooper said the expected higher costs are reducing but not crippleing the company’s risk-based capital, a key measure used by state insurance regulators to judge whether a company can keep writing new policies. She told investors the company will pause share repurchases, as it rebuilds capital. The company will keep paying shareholder dividends. It hopes to resume repurchasing its shares in the future.
Pandemic-related life insurance payouts, including those from early deaths due to COVID-19, have slowed from last year’s levels but also continue to weigh on profits. The company’s alternative investments (such as private equity) performed poorly, said chief financial officer Randy Freitag.
It’s not news that Lincoln National, like other large insurers that invest premiums and sell annuities and other investments to millions of clients, is sensitive to market downturns, like this year’s stock and bond market slides. In the 2008-2009 financial crisis, Lincoln was one of several insurance giants to qualify for federal TARP (Troubled Assets Relief Program) bailout funds, which it used to boost its sales force. The company repaid the $1 billion it took from the program in 2010, with interest.
Wall Street analysts scrambled to pronounce Lincoln sound despite the accounting write-downs. Traders remained wary Friday: The stock was down another 1%, ending the week worth $3 billion less than it started.
Still fighting over Republic Bank
Past chief executive Vernon Hill’s departure under pressure from Republic Bank last summer hasn’t ended the drama over control of the largest bank still based in Philadelphia.
The lender, with 35 branches from South Jersey to New York, says it has gotten back to business, opening a long-planned new branch in Broomall this week under plans hatched on Hill’s watch.
But three months after Hill resigned after losing majority support on the Republic board, the formerly retired Harry D. Madonna, who joined the opposition that toppled his successor, remains interim CEO. Dissident investors are pushing a rival slate of bank directors for the 2022 annual meeting — which, the bank told the Securities and Exchange Commission Friday, it finally plans to hold, on Jan. 26, 2023.
The bank is also making do with an interim chief financial officer since Frank A. Cavallaro abruptly resigned Oct. 28 after signing off on a long-delayed annual report for 2021, but before the bank issued similarly delayed quarterly reports for earlier this year. The bank had no immediate comment beyond the announcement of his departure.
The stock is trading at a two-year low, in contrast with other area banks such as WSFS and Univest, which, like Republic, have been hurt by the slowing economy but have still gained value over that period.
George Norcross, the insurance broker, political fund-raiser, and Cooper University Health Care chair, has been leading an investor group that’s been trying to buy majority control of the bank since his onetime ally-turned-target Hill was still in power. In open letters to investors, filed with the SEC, Norcross’ group has posted complaints about the continued delay in financial reporting.
Norcross on Tuesday expressed “utter astonishment” at Cavallaro’s unexplained departure and demanded “full disclosure,” along with the late financial reports. On Friday, Norcross called on Madonna to resign, citing what he called the bank’s deteriorating finances as well as its lack of disclosure.
Hill’s critics had said the bank should be sold. While the Federal Reserve keeps raising interest rates, the slowing economy has depressed bank stock valuations, making deals more expensive and less attractive to the risk-averse.
12 years later, SEC settles with Wilmington Trust boss
The fight over who was to blame for one of the many big-bank meltdowns from the Great Recession — and one of a very few that led to criminal charges against bankers — is finally winding down in Delaware federal court.
Last Wednesday, Robert V.A. Harra Jr., the last president of the former Wilmington Trust Corp., agreed to pay the SEC $100,000 to settle civil accusations that he misled investors and regulators by covering up real estate developer loan losses in the late 2000s.
The bank, founded by leaders of the du Pont family, was sold at a fraction of its former trading price to M&T Bank in 2010 after admitting larger-than-reported losses in property values. It paid out $60 million to settle SEC fraud accusations and $200 million to shareholders who filed a civil fraud case.
Indeed, Harra and three colleagues were found guilty in 2018 by a federal jury of fraud after jurors were convinced that they had illegally fooled both Wall Street and Washington into bailing out their failing bank. All faced prison terms and larger fines.
But the Third Circuit Court of Appeals, based in Philadelphia, reversed the verdict against Harra and fellow Wilmington Trust officers David Gibson, William North, and Kevyn Rakowski last year, finding that “the government here produced insufficient evidence from which a rational jury could find defendants’ statements false.”
The bankers had maintained all along they were valuing properties using practices approved by key regulators. (Indeed, real estate values rebounded after the bank failed; given more leeway, the bank could have recovered, instead of being forced out of business.) Federal prosecutors decided against a retrial.
“Mr. Harra has resolved the civil case with the SEC without admitting or denying the allegations,” his lawyer, Steven P. Wood, of McCarter & English LLP, said in a statement. “He has closed what has been a long and painful chapter in his life, and he is looking forward to spending quality time with his family and continuing to serve the community.”
The story has been updated in the fourth paragraph to make clear that Lincoln will continue to pay shareholder dividend as it pauses share repurchases.