At Colonial BancGroup Inc., the story line gets curiouser and curiouser.
Though Colonial promised last week to "promptly" replace retiring chairman and CEO Robert Lowder, the decision Wednesday to tap a pair of directors to fill his posts caught some by surprise. Colonial is in the final stages of selling itself to a group led by Taylor Bean & Whitaker Mortgage Corp., and some observers thought any big changes would wait until the new investors were on board.
Clearly, that was not the case, and the investment group behind the $300 million buyout said it was not allowed any input on moves that ushered in a new leadership during a delicate transition period for the $26 billion-asset Montgomery, Ala., company.
Lee Farkas, the chairman of Taylor Bean & Whitaker, said in an e-mail that his group was informed of the changes but given no say in the matter. He would not say whether Taylor Bean would honor the appointments should the sale go through or whether his group would follow the recommendations of a committee being formed by Colonial to broadly evaluate management.
The changes add another bizarre chapter at Colonial, which lost $880.5 million last year and another $168 million in the first quarter due largely to its significant exposure to residential developers in Florida. Analysts, however, have long believed Colonial's status as a major warehouse lender has made it tough for regulators to shut it down, and probably served as the impetus for Taylor Bean's offer.
Recent developments raise more questions: Who is at the controls? What does it mean for closing the Taylor Bean deal? How does Colonial stay focused on putting out fires and keeping key employees with so much uncertainty in the corporate suite?
Lowder, who was said to be working Thursday in Colonial's Auburn office despite his presumed retirement, could not be reached for comment. A company spokeswoman did not respond to requests to interview Simuel Sippial, the new chairman, or Lewis Beville, tapped to be president and CEO.
Analysts said Lowder's expedited replacement may have been spurred by regulators, who late last year slapped Colonial with a memorandum of understanding requiring it to raise capital levels. The company has yet to comply, though it is believed that the Taylor Bean infusion, along with another $550 million in potential capital from the Troubled Asset Relief Program, could satisfy the requirement.
The board's decision to promote longtime directors, neither having any direct bank management experience, seemed curious to some tracking the company. Some suggested the choice of successors showed that Lowder was still holding the reins on a board he had assembled since founding Colonial in 1981, even as he was on his way out. (The company announced Lowder's retirement last week.)
"It is a very unusual situation," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. "Maybe the regulators wanted a change in leadership before they even looked at Taylor Bean's application … but then again Colonial and the board are still in charge until the final hour."
Trabo Reed, Alabama's deputy banking superintendent, said his department had yet to rule on the changes, which also require Federal Deposit Insurance Corp. and Federal Reserve approval. A Federal Deposit Insurance Corp. spokesman said he would not comment, as did the Fed.
What makes the changes even stranger to some is the fact that the board will be overhauled soon after the Taylor Bean purchase closes. The Farkas-led investment group is to appoint six directors and have a say in the status of another four. Colonial will be allowed to pick five directors; Lowder has already agreed to retire from the board.
Farkas would not comment on what his management plans would be after completing the deal. Analysts, however, said it is unlikely that Beville and Sippial will keep their new posts.
Jefferson Harralson, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he was comfortable with the appointments as a short-term solution.
"Once the sale to TBW [is] settled and we get on the other side of the recession, they can revisit everything."
Fitzsimmons said the turbulence could make it harder for Colonial to retain its most-prized executives."The employee base must have the same questions that we have and not that many answers."