I’m not a financial analyst; far from it. However, I did work for a financial institution for five years, and I lost my job as a result of that financial institution, Sky Financial Group, being acquired by Huntington Bancshares.
Since Huntington gave me a quite reasonable retention bonus and severance package (most of which still remains in my high-yield savings), and since my job loss was the catalyst for a new and better career move, and (most importantly) since my severance agreement included a clause against publishing negative commentary about the company, I’m disinclined to talk smack about Huntington.
However, that doesn’t mean I’m not curious about how they’re faring in the current financial climate. I’ve remained blissfully ignorant of most of the happenings of the bank since I left, with only a few bits and pieces making it my way through the grapevine. Now that things are coming to even more of a head in the financial world, though, I find myself wondering how that merger worked out for them.
Not so good, it seems.
I found a news article to corroborate a particularly juicy rumor I heard a while back, about subprime loans and our former fearless leader, Mr. Adams:
Shareholders sue Huntington over Franklin Credit
Friday, May 23, 2008
Huntington Bancshares Inc.’s inherited relationship with mortgage lender Franklin Credit Management Corp. is bringing the Columbus bank a round of legal troubles.
Columbus-based Murphy Murphy Moul & Basil LLP and Houston’s Susman Godfrey LLP filed a class-action lawsuit in U.S. District Court in Columbus against Huntington, which acquired Bowling Green-based Sky Financial Group Inc. less than a year ago. Former Sky CEO Marty Adams and Sky Chief Financial Officer Kevin L. Thompson also are listed as defendants in the suit.
The law firms filed the suit on behalf of current and former shareholders in Fort Wayne, Ind.-based Waterfield Mortgage Company Inc., which Sky acquired in October 2006. The complaint alleges Sky, at the time of the Waterfield buyout, made false and misleading statements and omitted information regarding its relationship with Jersey City, N.J.-based Franklin Credit (NASDAQ:FCMC). Franklin was a mortgage servicer and lender that had been a customer of Sky for 17 years before the Huntington deal, using funding from the bank to originate mortgages and buy mortgage loan pools, mostly subprime.
Huntington on Nov. 16 warned investors it had a $1.5 billion exposure to the nation’s subprime mortgage mess through the inherited relationship and was preparing to set aside hundreds of millions of dollars to cover an expected sharp rise in loan losses.
Adams, then Huntington’s president, retired a few weeks after the announcement.
Huntington’s announcement came as a surprise to former Waterfield shareholders, whose stock by then had been converted to Huntington shares, the complaint alleges, adding that Huntington’s disclosures related to its Franklin relationship shine light on Sky’s previous omissions. According to the complaint, Sky classified its loans to Franklin as commercial, not residential, in an April 2006 regulatory filing. It said in documents related to the acquisition Sky failed to mention Franklin by name or characterize the magnitude of its relationship with the lender.
For current shareholders, the suit is seeking recovery of the difference between the price investors paid for their Sky shares and the price at the time of the lawsuit. For those who sold stock after Huntington’s Nov. 16 announcement, the suit is seeking recovery of the difference between the amount originally paid for their Sky stock and the sale price.
This news is especially amusing to former Sky employees since, on that very first conference call / early Christmas present, Marty was quick to point out that HE would be keeping his job, and staying on at Huntington. This may have been meant to reassure us that Sky wasn’t completely going away, but all it did was make us slightly bitter at our CEO.
Since the acquisition, Huntington’s stock has continued to plummet, from around $23 a share when the merger was first announced, to around $19 a share at the time of the merger and falling quickly off immediately afterward, all the way down to almost $6 per share today. On top of the subprime loans that Sky may or may not have correctly represented, there’s also apparently some concern about a potential deterioration in their “credit quality performance.”
Like I said, I’m no financial analyst. I guess my point here is that I’m glad things turned out the way they did for me. Had I not been let go, I might have been one of the employees that were rumored to have been let go long after conversion — or something might go awry with the recent downturn in banking in general. In any case, I’m glad to be just a consumer of financial services, and not an employee.
(Wondering how your Ohio-based banking institution is faring? Philip van Doorn of TheStreet.com might have some answers for you. I’m not concerned, really, since all my deposits are FDIC-insured — I don’t have anywhere near $100K in the bank…)