Regions Cut for Second Time in Month by Moody's on Risk Managers' Ouster

Regions Financial Corp., Alabama’s biggest bank, had its credit rating cut for the second time this month by Moody’s Investors Service after the lender ousted three managers who oversaw risk and souring assets.

The firm’s senior debt rating was lowered two notches to Ba3 from Ba1, Moody’s said in a statement late yesterday. Regions’ board wanted personnel changes amid “slow” progress in improving credit quality, the bank’s finance chief, David Turner, said yesterday at a New York investment conference. Chief Risk Officer Bill Wells resigned and two other executives retired and left the company, he said.

Their exit, as the bank deals with souring loans, “raises serious concerns regarding the firm’s controls and the path of future asset-quality charges,” Moody’s said, adding that all long-term ratings are on review for possible downgrade. On Nov. 1, Moody’s cut the senior debt rating one level from Baa3.

Regions last reported an annual profit in 2007, and since the start of last year has written off more than $3 billion in loans, mostly tied to developers, home builders and mortgage borrowers in Georgia and Florida. In the third quarter, charge- offs for uncollectible loans jumped to $759 million from $651 million in the previous three months because of more bad commercial real-estate loans.

“It’s never a good time to make changes like this,” Turner, the bank’s fourth finance chief since 2006, said of the departures.

Pace of Change

Chief Executive Officer Grayson Hall and directors made the decision because they think “our pace of change needed to pick up with regards to our credit environment as well as bringing in somebody new with a different perspective,” Turner said. The decision wasn’t imposed by regulators, he said.

The Birmingham-based lender has yet to repay $3.5 billion in taxpayer funds from the Troubled Asset Relief Program. In cutting the rating on Nov. 1, Moody’s cited a decreasing expectation that the government would again offer Regions and other U.S. local banks emergency support.

Shares of Regions slumped yesterday to the lowest since January, falling 4.5 percent to $5.92 in New York Stock Exchange composite trading.

The exit of executives who monitor potential losses “certainly signifies substantial risks toward future performance and valuation of their current assets,” said Christopher Gamaitoni, an analyst at Compass Point Research & Trading LLC in Washington.

‘Slow’ Progress

The personnel moves weren’t prompted by additional reserves or charge-offs for bad loans, Turner said.

“We’ve made progress, but it has been slow, it’s been slower than we wanted, slower than what our board wanted, slower than what you guys wanted,” he told the audience of investors.

The bank doesn’t “see any likely scenario” in which it would have to raise capital to cover losses, Turner said. It has $5 billion in capital exceeding minimum levels to be considered “well capitalized,” he said, plus $3.2 billion in allowance for loan losses.

Gulf Coast banks were beginning to rebound from hundreds of millions of dollars of losses on real estate, when BP Plc’s offshore oil well exploded April 20, unleashing a record spill that crimped the local economy. Regions’ stock, which had climbed 66 percent in 2010 until the disaster, has since pared the gains and is now up 12 percent this year. Its $155 million loss in the third quarter exceeded some analysts’ estimates.

The firm announced the departures in a statement after the close of trading Nov. 15. Its director of credit risk, Michael Willoughby, retired while the head of problem-asset management, Tom Neely, left, the company said.

Interim Appointees

Neely declined to comment. Phone numbers for Willoughby and Wells couldn’t be found. Tim Deighton, a spokesman for the company, declined to comment on Moody’s decision and on the departures beyond the Nov. 15 announcement and Turner’s remarks.

Wells joined Regions’ predecessor, AmSouth Bancorp, as chief risk officer in 2004, after having the same post at SouthTrust Corp., a Birmingham-based bank acquired by Wachovia Corp. Willoughby, 65, was the company’s chief credit officer from 1997 through 2009, when he was named director of credit risk.

Their responsibilities are being handled on an interim basis by the bank’s head of credit operations, Barb Godin, and the risk analytics chief, John Haley, who will also oversee areas including regulatory affairs and compliance risk, according to the bank’s statement. They will report to Turner until Wells’s successor is appointed, possibly before the end of the year.

To contact the reporter on this story: Nishad Majmudar in New York at nmajmudar@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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