Although CEO Thomas Hoaglin is taking the bull by the horns, and may very well be successful in restoring Huntington Bancshares to robust health, the likelihood of the company surviving as an independent entity is small.

Hoaglin's formula is to drastically downsize the Columbus, OH-based company. While that is likely to substantially improve its earnings and stock price, it's questionable whether a company with shrinking assets can continue on its own in this era of rapid consolidation.

"Only time will tell," Hoaglin said in an interview. But he said a key part of his strategy is to revitalize Huntington's core business in the Midwest by decentralizing decision-making and developing a uniform sales program. His goal is to bring the company's cross-sell ratio to at least the average for all large banks.

There's no question that the 52-year-old Hoaglin is moving boldly. Having taken over last February, he already has slashed the dividend by 20% and has announced plans to sell Huntington's Florida operations. Those include 139 offices with $4.5

billion in deposits and 458 ATMs.

The sale should immediately help Huntington's returns because the Florida branches have always been underperformers.

The moves should strengthen Huntington's capital account by about $730 million, according to Derek J. Statkevicus, an analyst at Keefe, Bruyette & Woods. He estimates the branches will draw a 13% premium over the deposits, which would bring about $590 million. Its capital requirements also will be reduced by about $145 million, as a result of the sale of about $2.2 billion in loans held by the Florida branches, says Statkevicus. The overall $730 million improvement in Huntington's capital structure "is the real key," says Statkevicus, who is optimistic about the bank's short-term outlook, but not sure about the longer term.

Much will depend on whether Hoaglin can improve the performance of the bank's core business in the Midwest, especially its Michigan operations, which have been lagging. Statkevicus thinks Wall Street will give Hoaglin a year to find out.

In addition to selling the Florida unit, Hoaglin plans to consolidate 43 branches in its key franchise, which includes Ohio, Michigan, Indiana and West Virginia. He also plans to buy back stock, which will help raise Huntington's return on equity and raise the price of its shares.

Reducing the size of the company can work wonders in terms of profits and strength. But can a shrinking company survive as an independent entity in an era of consolidation?

Hoaglin says it's difficult to tell, but that the restructuring will produce more "strength and flexibility." And strength and flexibility, he says, will give it greater control over its destiny.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.