OCC Accuses Hibernia Of Bleeding Lead Bank
Troubled Hibernia Corp. has been accused by the Office of the Comptroller of the Currency of violating federal banking and securities laws and may be forced to restate several earnings reports.
In an unusually explicit enforcement agreement, regulators accused the New Orleans-based banking company of using improper accounting practices, bleeding its lead bank, and making illegal bond trades with customer funds.
Sidney W. Lassen, Hibernia's acting president and chief executive, characterized many of the Comptroller's charges as "accounting issues," which he said the company was working hard to resolve. Mr. Lassen said he could not yet tell whether the company would materially revise prior earnings reports.
High Flight, Quick Descent
The OCC's cease-and-desist order, the most stringent regulatory action, was made public roughly two weeks after Hibernia's entire senior management team was ousted. The Comptroller's report raises further questions about the high flight and quick descent of Louisiana's largest bank holding company.
"Hibernia has gone from the penthouse to the outhouse, and in record time," said Frank Anderson, a senior analyst with Stephens Inc., Little Rock., Ark. Trading as high as $26 a share in 1989, Hibernia common stock was unchanged on Wednesday afternoon at $4, or a 60% discount from book value.
The company suffered an $82.7 million loss during the first half of this year as problem assets soared 58% to $339 million, or 7% of gross loans. Hibernia recently put itself up for sale and announced plans to auction off its 25 branches and $1.1 billion of assets in Texas.
In a report signed by Hibernia's directors on July 30, the Comptroller said the company has overstated interest income from troubled loans, improperly billed parent-company expenses to the lead bank, and improperly diverted bank funds to the parent company.
The Comptroller ordered Hibernia's directors to aid Hibernia National Bank in "seeking restitution" from the parent company. The federal regulatory agency further ordered Hibernia to hire an independent auditor to help clean up the company's books.
Hibernia's regular accounting firm is Ernst & Young Inc. An Ernst & Young spokesman declined to comment.
Mentioning "violations of bank deal securities laws and regulations," the OCC ordered Hibernia to investigate whether customers had been harmed and henceforth to conduct "regular and frequent" examinations "in order to detect and prevent irregularities and abuses."
Mr. Larsen said the Comptroller's concerns over municipal bond transactions centered on deficient documentation in a brokerage subsidiary. He said customers had not suffered losses as a result of municipal bond trades.
The executive said Hibernia's board already had established a regulatory compliance committee and additionally had formed a compliance unti within the lead bank.