A clash over the future of the troubled Doral Financial Corp. has led to the resignation of its nonexecutive chairman, John A. Ward 3rd.
Mr. Ward resigned his position and his board seat Friday, Doral revealed in a regulatory filing Wednesday. In his resignation letter e-mailed to the San Juan, Puerto Rico, company's board Friday, Mr. Ward wrote that the new management team is focused too much on raising capital to pay off bondholders and too little on finding a buyer for Doral.
"I am very concerned that our investment bankers will not aggressively pursue a strategic buyer given their substantial commitment of time and effort to the private-equity transaction," he wrote.
The $13.8 billion-asset Doral said Wednesday that it had named one of its directors, Dennis G. Buchert, the president of Whitehall Associates Inc., to chair its board. Mr. Buchert joined the board in October as an independent director.
Mr. Ward "holds different views as to the best process to be followed by the company to meet its capital and liquidity needs and maximize shareholder value," Doral said in the release. It would not comment further.
In a brief phone interview Wednesday, Mr. Ward said: "I'm not going to comment on Doral at all. I think the press release is self-explanatory, my e-mail is explanatory, and I think that's enough."
In his resignation letter, Mr. Ward, the chief executive of Innovative Card Technologies in Los Angeles, criticized Doral for not letting him review its third-quarter earnings release, which came out Friday.
"I am becoming increasingly concerned about the process of governing this company," he wrote. "The filing of the 10Q and the press release is an example of an unprofessional process, which was unnecessarily rushed to meet an artificial deadline. As many of you know, I had significant concerns about the wording of the press release, but it was released anyway without contacting me."
Doral filed its third-quarter earnings results with regulators on Friday, making its financials current after nearly two years of accounting issues, earnings restatements, and late quarterly reports. The results were dismal. Doral recorded a net loss of $28.7 million, or 34 cents a share. Analysts had expected a net loss of 12 cents a share, according to Thomson Financial.
Doral said mortgage originations were down 76% from a year earlier, in part because it steered clear of unconventional nonconforming loans that contributed to the accounting troubles it had two years ago.
Doral said Friday that the refinancing of its $625 million floating-rate senior notes that mature in July remains its "greatest liquidity challenge." Doral's shares, which closed at $3.29 on Dec. 28, the day before it released third-quarter earnings, have fallen 26% since then and closed down 9.1% Wednesday.
Mr. Ward is the second executive to resign from a Puerto Rican banking company in the past three weeks.
The $13.4 billion-asset R&G Financial Corp., which has accounting issues similar to Doral's, announced Dec. 18 that its president and CEO, Victor J. Galan, would step down. It said Mr. Galan might have ignored advice from a legal consultant regarding mortgage sales. Mr. Galan denied discussing the loan sales with the legal advisers.
Anthony Polini, an analyst at Soleil Securities Corp., said that in Doral's case Mr. Ward was clearly disappointed by the direction the company is headed.
"It's frustrating when you think there might be a course of action you think could perhaps avoid that kind of fall in the common stock price. I think the new guys are very much committed to maintain this as a viable entity," Mr. Polini said Wednesday.
Joseph Gladue, an analyst at Cohen & Co., said, "It's a pretty unusual situation when things are done against the wishes of the chairman." Mr. Polini and Mr. Gladue both said they do not believe Doral's management will seek a sale in the near term.
Mr. Ward joined Doral's board as chairman in July 2005 as the company wrestled with its accounting issues. He was interim CEO from September 2005 until August of last year, when Glen Wakeman, the chief operating officer, was named chief executive.
The company said the board met Tuesday to discuss Mr. Ward's concerns and to elect Mr. Buchert chairman. It declined to make him or Mr. Wakeman available for an interview Wednesday.
Mr. Buchert was chief executive officer of Credit Agricole Indosuez between 2003 and 2004, president and CEO of IBJ Whitehall Bank and Trust Co. in New York between 1997 and 2002, and executive vice president of IBJ Schroder Bank and Trust Co. in New York from 1994 to 1997.
Mr. Gladue acknowledged that Doral may be able to resolve its liquidity problems. In a research note, he wrote that "a private equity transaction is a viable means of providing sufficient capital to keep the company in business; however, it is also likely to result in substantial shareholder dilution."
JPMorgan Chase & Co. and Bear Stearns Cos., Doral's bankers, declined to comment Wednesday.
