Finova Group Inc. announced on Monday the immediate departure of its longtime chief executive officer, Samuel L. Eichenfield, and an $80 million charge that would leave its first-quarter earnings shy of projections, a pair of moves that stunned Wall Street and sent the company's stock price into freefall.
More trouble may be ahead, analysts said. Finova said it has about $50 million in exposure to two companies in the troubled health-care sector, but added that it was too early to tell whether it would have to write off those loans.
Finova's competitors, most of them regional banks that specialize in middle-market lending, have also disclosed problem loans to the health-care sector. In recent months Amsouth Bancorp. in Birmingham, Ala., SunTrust Inc. in Atlanta, and Hibernia Corp. in New Orleans have all announced earnings hits because of exposure to health-care companies that have suffered from recent changes in Medicare rules.
Analysts said Finova's announcement on Monday raises questions about its near-term prospects. Ratings agencies have yet to announce whether they will take any actions regarding Finova's debt, but meetings with the company are expected this week.
Mr. Eichenfield, 62, decided to take an early retirement after 13 years as president of the Scottsdale, Ariz., commercial finance company. He has been chairman and chief executive officer of Finova since its spinoff from Dial Corp. in 1992.
Finova also disclosed it would write off a $70 million loan to a "major customer" of its inventory finance group and would charge another $10 million to first-quarter earnings to pay for severance and deferred compensation for Mr. Eichenfield, the company said.
Matthew M. Breyne, who was named president and chief executive officer of Finova, said the timing of the two announcements was entirely coincidental.
In a conference call Monday, Mr. Breyne described the problem loan customer as a privately held West Coast distributor of personal computers and related computer components. Finova's relationship with that customer began in 1989, Mr. Breyne said. By 1996, Finova had become its primary lender.
But the loan relationship ran into problems two years ago, Mr. Breyne said. The customer's revenues and income began to decline, the payments went delinquent and financial reporting was less than stellar, he said.
Finova attempted to restructure the debt but failed. "We did not respond quickly enough," Mr. Breyne said in a telephone interview. "We just botched that deal up."
The Finova unit affected, distribution and channel finance, makes up 4% of the company's overall loan portfolio, according a January investor presentation. The company said it targets its business on loans ranging in size from $5 million to $30 million, but it also acknowledges making more aggressive deals.
Uncertainty about the near-term performance of the company combined with general skittishness about financial services stocks sent Finova shares tumbling throughout the day. The stock closed down 38%, to $19.875. The company had been expected to earn 92 cents a share for the first quarter, but the charges would reduce reported profits by 74 cents, the company said.
It is the latest misstep by Finova, a $13.6 billion-asset firm that focuses on making secured loans to small and middle-market companies. Last year Finova said it would adjust prior year earnings to eliminate gain-on-sale accounting. Monday's announcement of a loss "was not a big confidence enhancer," said Michael J. Freudenstein, an analyst at J.P. Morgan Securities.