Banc of California in Santa Ana warned that its quarterly earnings will take a hit after a borrower was the victim of alleged scam.
The $9.3 billion-asset company disclosed in a Tuesday regulatory filing that its third-quarter earnings will be reduced by about $27.9 million, or 54 cents a share, which includes a specific loan-loss provision and a charge tied to the cancellation of a swap contract.
Specifically, Banc of California said it will set up a $35 million provision tied to a line of credit, originated in late 2017, for a borrower that finances California liquor licenses. The charge-off is equal to about 0.52% of the company’s $6.7 billion loan portfolio.
Banc of California also expects to incur a $1.1 million charge tied to a swap contract associated with the loan.
The company estimated that the development will lower its total risk-based capital, which stood at 15% on June 30, by 35 basis points.
The borrower is one of about 50 investors that were allegedly defrauded in a $300 million scheme by ANI Development, a San Diego investment company, the filing said. The Securities and Exchange Commission on Aug. 29 filed a complaint and obtained consent to asset freeze accounts tied to ANI and its principal.
The SEC alleged in its complaint that ANI and its principal misrepresented and forged escrow account agreements and statements, presented fraudulent liquor license applications and misappropriated the funds.
Banc of California “is continuing to investigate the matters described above and has contacted the SEC,” the filing said. “Although the bank plans to pursue any available sources of collection and other potential means of mitigating the loss, no assurance can be given that it will be successful in this regard.”
Jacquelynne Bohlen, an analyst at Keefe, Bruyette & Woods, wrote in a note to clients that Banc of California's management plans to conduct an independent loan review that will focus on loans that are not secured by real estate. "This review will focus keenly on collateral backing the C&I loans and assess the receivables of the borrower," she added.
