Bank's loan sale doesn't end risk
Couldn't the lender find any outside buyers for its slow loans? asks Sandler's Schiraldi
Despite the retirement of founder Betsy Z. Cohen and a Dec. 31 deal to sell off one-quarter of the Cohen family-controlled loan and cash management company's $1.1 billion in largely Philadelphia-area business and consumer loans, The Bancorp still has a ways to go before the Wilmington and Philadelphia-based company will have a positive new story for investors, writes analyst Frank Schiraldi in a report to clients at Sandler O'Neill + Partners this morning.
Schiraldi notes the company sold its $268 million "nonperforming/sub-performing" loan book, which had already been marked down by $54 million (plus another $4 milllion during the fourth quarter) to around $210 million, for $194 million in 10-year senior and subordinated notes at around 2.2%, plus $16 million in (probably) cash.
But "unfortunately, the sale does not result in a 'clean break,'" Schiraldi writes. "We were disappointed" to see that Bancorp is still exposed to losses from the portfolio -- because the buyer "is a newly-formed entity, Walnut Street, in which the bank owns a 49% stake." Plus, most of the proceeds of the sale were paid for in Walnut Street debt, which is backed by those same lower-quality Bancorp loans and collateral (the Philadelphia-area properties whose owners used them to secure their loans from Bancorp).
"We would have thought that minimizing future exposure to this book would have been a priority," but maybe Bancorp could find no other buyers, Schiraldi adds. Given the small bounce the stock enjoyed on Cohen's departure announcement (after a sharp decline since last winter), Schiraldi expects shares may now drop again, at least in the short term. The analyst expects the bank will report a fourth-quarter loss, and will keep the stock rated "hold" at least until Bancorp gives investors "greater clarity" on how it will boost profits from its remaining business lines.