CEO's departure hopefully positive for shareholders

By DAVID MOON, Moon Capital Management, LLC
December 27, 2009

A week before Christmas, Regions Financial Chairman and CEO C. Dowd Ritter announced that he will be stepping down from the bank at the end of the first quarter of 2010.

That long overdue action is a nice Christmas present for the Regions shareholders.

The entire banking industry has been in difficult straights since the advent of the credit crisis in 2007. Regions, however, has seemed especially adept at stepping into problems of almost every possible type – as its shareholders and their balance sheets can attest.

Regions stock price has plummeted 82 percent since mid 2007, which is 61 percent more than the S&P Financials index. While the bank was losing $5.6 billion in 2008, Ritter took $48,000 in personal trips on company jets. He apparently likes corporate jets. Just weeks after taking $3.5 billion in federal TARP bailout funds, Ritter and his family used two of them to travel to a West Virginia resort for vacation.

The Wall Street Journal reported the cost of the flights as $17,700. That’s not exorbitant for private jet travel, but it’s more than the annual income of a lot of people. At best, Ritter simply overlooked the PR angle and timing of his vacation.

And at worst, he suffers from gross arrogance.

The remaining Dowd defenders will note that many of the loan problems that plague Regions were part of the loan portfolio the bank acquired when it purchased Nashville-based AmSouth in 2006. Other than a bunch of bad loans, what else did Regions get when it bought AmSouth?

Then AmSouth Chairman and CEO C. Dowd Ritter.

Ritter first caught my attention ten years ago when he orchestrated the AmSouth takeover of First American National Bank. In acquisitions like these, it is common for some of the top executives at the acquired bank to lose their positions and receive lovely parting gifts (“golden parachutes”) as they walk out the door. Because of the way AmSouth and First American structured the transaction, however, Ritter received millions in these “change of control” payments, although he never lost his job. He was, in fact, named CEO of the newly combined bank.

He received severance for a job he never lost, then enjoyed a doubling of his income the following year, to $10.7 million.

When Ritter arranged the sale of AmSouth to Regions in 2006, he “suffered” another change in control, even though he was again named CEO of the combined bank. As a result of this merger, certain portions of his long-term incentive compensation plan were triggered. His unvested options became immediately exercisable and the restriction periods imposed on his restricted stock were removed.

Regions losses in 2008 exceeded all of the company’s net income since Ritter’s arrival – by a factor of more than three.

CNBC wild man Jim Cramer named Ritter to his “Wall of Shame,” saying he would not touch Regions stock with a ten-foot pole as long as Ritter remained. It doesn’t happen often, but I agree with Cramer on this one.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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