As president and chief operating officer of Amcore Financial Inc., Donald H. Wilson spent more than a year trying to fix its loan troubles, all in vain.
This week the company eliminated 116 jobs — including his.
Analysts contended dismissing Wilson could be a blunder for the $5.3 billion-asset Amcore, which, after posting five consecutive quarterly losses, now faces a capital crunch.
Chairman and chief executive officer William R. McManaman said on a conference call Tuesday that the job cuts "are absolutely required for the situation we find ourselves in."
With raising equity a long shot, analysts said shrinking the balance sheet is the Rockford, Ill., company's best — and perhaps only — option to restore its capital.
They said that without Wilson — who is well-liked by investors and had been widely viewed as the heir apparent to the CEO — Amcore would likely have an even harder time seeking help from the capital markets.
McManaman said the job cuts had nothing to do with performance, and analysts said Wilson was doing a good job with the company he inherited.
He joined Amcore in February 2006 as executive vice president and chief financial officer after more than a decade at Marshall & Ilsley Corp. in Milwaukee. He was promoted to president and COO in August 2007.
"He was very highly regarded, and we thought if anyone was able to turn around Amcore, he was the person for it," said Chris McGratty, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
"If he is no longer involved," McGratty said, "everything becomes that much more challenging. … It is unfortunate that this is the route the board took."
Brian Martin, an analyst at Howe Barnes Hoefer & Arnett Inc. in Chicago, said that, though many banking companies are functioning without a chief operating officer, the expectation was that Wilson would be groomed for the CEO job.
"He was a valuable part of the franchise," Martin said. "I know companies are faced with making tough choices, but they certainly parted with a valuable asset to the organization."
Attempts to reach Wilson for comment Tuesday were unsuccessful.
McManaman was hired in early 2008 after the abrupt resignation of Kenneth Edge and was widely believed to be a temporary fill-in, giving Wilson more time to prepare to take the helm.
Amcore said Monday after the market closed that its first-quarter net loss widened 10.5% from a year earlier, to $30.4 million, as the company continued to lose money on residential construction and development loans.
The company's Amcore Bank is no longer well capitalized under regulatory definitions.
Nonperforming loans increased 252%, to $402 million, and accounted for 10.9% of total loans.
The layoffs reduced Amcore's head count by 9% and came after an 11% cut in 2008.
There is no plan, McManaman said, to replace Wilson or Richard E. Stiles, the executive vice president of the commercial banking group, whose job also was cut.
The company said it expects the most recent round of expense cuts to require a $2 million charge in the second quarter. Amcore also cut executive salaries by 5%, suspended employee merit increases, shrank the company's 401(k) contributions and changed branch hours.
The cost-cutting should save $20 million annually, the company said.
The cuts are part of a broader strategy to shrink the balance sheet in order to preserve and boost the bank's capital ratios, as well as to comply with a written agreement with the Office of the Comptroller of the Currency last May to strengthen its loan portfolio controls and reviews.
The company said the total risk-based capital ratio at its bank unit fell to 8.8% on March 31, which is below the 10% minimum it needs to be considered well capitalized by regulators.
As a result the bank will have to pay higher deposit insurance premiums and its access to certain wholesale funding sources will be limited.
Amcore spent last year tinkering with its size and controls, including massive reappraisals of its portfolio, firing commercial lenders and taking aggressive writedowns and chargeoffs.
The company sold an $80 million pool of loans in the third quarter, and McManaman said during Tuesday's call that the company's balance sheet will shrink further as the it sheds "those relationships that haven't been a broad-based relationship."
"Some of those loans were generated while we were growing our Chicagoland footprint. They were event-driven transactions," he said.
Amcore has also suspended its dividend and deferred the payments on its trust-preferred securities.
"We can not control the economy, but we are committed to managing what we can control," McManaman said.
Howe Barnes' Martin said shrinking is the only realistic strategy for Amcore, which has never said whether it applied for an infusion from the Treasury Department's Troubled Asset Relief Program.
"They continue to talk about exploring for capital, and that is proving difficult," he said. "They haven't gotten Tarp. Nothing else has come to pass. They have to do what they can."
Keefe Bruyette's McGratty echoed Martin but cautioned that shrinkage may only go so far.
"They need to do whatever they can to hoard capital," McGratty said. "At some point, though, the best fit could be with another institution."
