May 20, 2008 / 10:02 AM / in 11 years

Ranieri's Franklin Bank faces SEC probe, CEO out

May 20 (Reuters) - Franklin Bank Corp FBTX.O, a Texas bank overseen by mortgage bond pioneer Lewis Ranieri, said it faces a U.S. Securities and Exchange Commission probe related to its lending practices, and that it has replaced its chief executive.

Ranieri, the bank’s chairman and a former Salomon Brothers Inc vice chairman, will become interim chief executive, the Houston-based bank said late Monday.

He replaces Anthony Nocella, whom the bank said “will accelerate his personal plans to retire” by year end. Nocella, the chief executive since July 2002, will remain a director and chairman of the company’s banking unit, the bank said.

The SEC inquiry comes on the heels of a 10-week internal investigation that the bank said uncovered a variety of accounting errors, largely related to residential mortgage loans.

Franklin said it has also been in communication with the Federal Deposit Insurance Corp and the Texas Department of Savings and Mortgage Lending, and plans to cooperate with those agencies and the SEC.

The company has been unable to file its first-quarter report because of the internal probe, and this month said investors should not rely on its reported fourth-quarter results, which included a $66.1 million loss.

It also said it working to restate its third-quarter report and complete its 2007 annual report, but does not know when it will complete either.

Shares of Franklin closed Monday at $1.01 on the Nasdaq. They have lost more than 90 percent of their value in the last year, after trading as high as $21.88 in October 2006.

Once a Wall Street mail clerk, Ranieri is often credited popularizing mortgage-backed securities in the 1980s while at Salomon. Franklin’s 2007 proxy statement said Ranieri “is generally considered to be the ‘father’ of the securitized mortgage market.”

Ranieri was also a key figure in Michael Lewis’ 1989 best-seller “Liar’s Poker.” Since leaving Salomon, he has started several ventures, including Ranieri & Co, a private investment firm.

According to its Web site, Franklin was founded in August 2001, bought its first community bank in April 2002, and later acquired several other small banks. (Reporting by Jonathan Stempel in Bangalore; Editing by )

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