UPDATE 2-Wilmington Trust shares sink on abrupt CEO change

Fri Jun 4, 2010 4:17pm EDT

* Stock drops 10 percent

* Foley says no other candidates considered for CEO

* Investors worried about credit weakness

(Adds analyst comment)

By Joseph A. Giannone

NEW YORK, June 4 (Reuters) - Wilmington Trust Corp WL.N saw its stock sink more than 10 percent on Friday after the regional bank abruptly handed the chief executive job to a director with no bank or CEO experience.

Moreover the bank failed to allay lingering worries about credit woes that prompted stricter regulatory oversight and a $274 million stock offering in February.

Longtime Wilmington boss Ted Cecala, 61, surprised investors on Thursday when he announced he would retire next month after 31 years at the company. The past two years have been especially trying, analysts said, as credit quality in Wilmington's commercial bank arm suffered.

Replacing him immediately as CEO is Donald Foley, a Wilmington Trust director who was a former treasurer of ITT Corp (ITT.N). Cecala will serve as chairman until July 19, after which the board will choose a successor.

The surprise move, which took place without a search, and the lack of new information on Wilmington's soundness, sent investors fleeing.

"The timing of the departure was definitely a surprise to many people," said Stephen Moss, a bank analyst at Janney Montgomery Scott in Philadelphia. "It does seem abrupt to a number of people. That leads to worries that there is more to come on the credit side."

After Wilmington officials conducted a conference call to introduce Foley on Friday morning, shares of the bank quickly fell as much as 12 percent. They closed down 9.8 percent or $1.47 at $13.52 on the New York Stock Exchange on Friday.

Under Cecala, CEO since 1996, Wilmington nearly tripled assets under management to $42.3 billion. The company operates a regional Mid-Atlantic commercial bank and offers wealth management for the rich in 36 countries.

Cecala, who said he has been considering retirement "for some time," told analysts his decision to step aside was not driven by the board or by any strategic disagreement. He said there would not be any severance charges.

A Wilmington spokesman declined to comment on the specific dates when Cecala decided to retire, when he informed the board or how quickly the board offered the top job to Foley.

Foley, who served on the audit committee of Wilmington's board for three years, said there was no external search for a successor and that no other candidates were considered when Cecala revealed his plan to retire.

"The board very quickly turned to me and said 'You are our best candidate. What do you want to do?,'" Foley recalled,

Several investors on the call questioned the sudden change and Foley's qualifications to run a bank holding company. Foley never managed a bank before, nor was he a CEO at any company.

Before joining the board in July 2006, Foley managed ITT's capital and financing activities, as well as its pension and defined-contribution investments. He was a member of its executive council and chairman of ITT Industries of Canada.

The awkward hand-off came at a time when investors are worried about Wilmington's progress in reducing a pile of problem loans and bolstering capital.

Wilmington in February sold $250 million of new stock so that it could repay a $330 million investment made in December 2008 under the U.S. Treasury's Troubled Asset Relief Program, or TARP.

Many of the strongest large-cap banks have repaid their investment to Treasury, though hundreds of smaller regional banks have not. Foley noted regulators will be conducting a "soundness review" during the third quarter, after which Wilmington will learn if it is sufficiently strong to return the funds.

The bank, which filed its quarterly filing a few weeks ago, did not offer the latest balance sheet data during the call. Cecala said Wilmington has strong capital ratios and sufficient cash to repay TARP "when we have the ability to do that."

Some investors have argued the bank needs to raise more capital, and one during the conference call asked if Wilmington had been approached by buyers. Cecala said there had been no disagreements about the direction of the company.

Foley told investors and analysts the proud 107-year-old bank was "committed to remaining independent."

(Reporting by Joe Giannone; Editing by Gerald E. McCormick, Dave Zimmerman, Phil Berlowitz)

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