Banc of California in Irvine is already taking steps to overhaul its corporate structure after the abrupt departure of its high-profile leader.
Steven Sugarman's resignation Monday as head of the $11.2 billion-asset company took place less than two weeks after the Securities and Exchange Commission launched a formal investigation into previous corporate disclosures.
The biggest — and most immediate — change is taking place in the boardroom, where Banc of California decided to split the titles of chairman and CEO. A spokesman confirmed that the move is permanent.
Sugarman had held both titles since 2013.
Robert Sznewajs, a veteran banker who was the head of West Coast Bancorp in Lake Oswego, Ore., when it was sold in 2012, is the new chairman. Hugh Boyle, the company’s chief risk officer, will serve as interim CEO until a permanent replacement is found.
The board, which has formed a search committee, plans to hire an outside firm to help review internal and external candidates. While the committee plans to move expeditiously, it has enough confidence in the interim managers to avoid rushing to a decision, the spokesman said.
Sznewajs has the experience to step in, but Todd Baker, a managing principal at Broadmoor Consulting and a senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, said he doesn’t expect the 69-year-old banking veteran to seek the job.
At the same time, Boyle is “very much a commercial credit guy who’ll do a great job” keeping Banc of California running smoothly until a permanent CEO is named, Baker said.
Boyle did not respond to a request for comment.
Sznewajs and Boyle may also have to deal with jittery investors and elevated expenses tied to the probe. Banc of California’s shares fell more than 9% on Monday.
“Obviously, an SEC investigation should not be viewed favorably, and we do not think this news should be taken lightly,” Andrew Liesch, an analyst at Sandler O’Neill, wrote in a note to clients. “Responding to this investigation will undoubtedly add some legal bills and it could result in a fine.”
The resignation was a surprising turn of events for Sugarman, who began consolidating power at Banc of California a few years after COR Capital, where he is still the managing member, recapitalized the former First PacTrust in late 2010.
Sugarman became Banc of California’s sole CEO in 2012 when Gregory Mitchell resigned a month after the company announced that the executives would share CEO duties. Sugarman took over management of Banc of California’s bank in November 2013 when Robert Franko resigned following a big quarterly loss.
Sugarman, then in his late 30s, had been among the youngest CEOs of banks the size of Banc of California; last year he was the subject of an admiring feature in the Los Angeles Times with a headline that cited his “long resume and stellar” credentials.
But Sugarman and Banc of California also absorbed harsh criticism last year that included claims of improper dealings involving directors and senior executives. PL Capital, an activist investor that frequently sparred with Sugarman, also took issue with alleged conflicts of interest tied to Banc of California’s decision to spend $100 million for the naming rights to a soccer stadium.
In mid-October, an anonymous blogger using the alias Aurelius posted a report tying Sugarman to Jason Galanas, a Los Angeles financier who was charged last year with defrauding investors.
Richard Lashley, a managing member at PL Capital, declined to discuss Sugarman’s departure.
Banc of California disclosed in an Oct. 18 press release that it had launched an independent investigation and found the blogger’s claims to be groundless.
The problem, Banc of California disclosed on Monday, is that the October release contained “inaccurate” information, notably that management — and not the board — had authorized the investigation. The release also characterized the investigation as independent when the law firm involved had previously represented Sugarman and the company.
Yet Banc of California also disclosed Monday that a separate investigation begun later by its board — and handled by a different law firm — has so far found no evidence that Galanas has had “any direct or indirect control or undue influence over the company.” That investigation has also found no indication that "any loan, related-party transaction or any other circumstance has impaired the independence of any director." The special committee expects the law firm to present its final report in coming weeks.
The SEC, meanwhile, notified Banc of California of the formal investigation, which includes a subpoena seeking more information, earlier this month.
Banc of California plans to announce quarterly results on Jan. 30.