Imperial Bancorp Shares Fall on News of Loan Problems
Investors have hammered shares of Imperial Bancorp this week, after the Inglewood-based bank disclosed worsening credit problems caused chiefly by a loan to a workers’ compensation insurer.
Imperial (ticker symbol: IMP) revealed in a financial filing this week that its second-quarter loan charge-offs would “significantly increase” due to problems with an $8.8-million loan to an unnamed insurer.
Analysts identified the delinquent borrower as Superior National Insurance, which was seized by state regulators in March and filed for bankruptcy last month.
Imperial also warned that some of its other loans--particularly those made with other banks as part of a larger lending syndicate--might be at risk.
“Imperial is yet one more sign that credit quality is no longer a back-burner issue” in the banking business, said David Trone, analyst at Credit Suisse First Boston in New York. And rising interest rates could make it tougher for many troubled borrowers to refinance their bank debts, he warned.
But Imperial officials downplayed the credit problems and said the bank, with $7 billion in assets, remains confident that it will hit analysts’ earnings estimates.
“This is not a systemic problem,” said Dennis Lacey, Imperial’s chief financial officer. “It’s a couple of loans that happen to be large. That happens in the lending business. Fortunately, we have the earnings power this year to accommodate it.”
Mark Morgan, an analyst at Putnam Lovell Securities in San Francisco, agreed with Lacey, predicting that Imperial’s earnings momentum would offset loan losses. He called the recent stock drop a “buying opportunity.”
But Trone took a more pessimistic view, lowering his earnings estimates for Imperial by 5 cents a share to $1.55 for 2000 and by 10 cents to $1.70 for 2001.
On Wednesday, Jefferies & Co. analyst Charlotte Chamberlain warned that Imperial may be masking rising loan losses and charge-offs with profits it generates from exercising stock warrants in emerging technology companies.
Those warrants accounted for about half of Imperial’s profits in the first quarter. But with the recent market volatility, Imperial may not be able to rely on that income in the future, Chamberlain warned.
She also raised concerns about Imperial’s entertainment lending division. She noted that the bank helped finance John Travolta’s new film, “Battlefield Earth,” which had a lackluster opening weekend.
But Lacey said that Imperial’s $44-million loan to Franchise Pictures producer Elie Samaha was largely repaid before the film opened and that the bank anticipates no problems with the loan.
Nevertheless, after Jefferies downgraded the stock on Wednesday to “hold” from “accumulate,” the shares fell 14%. They eased further on Thursday, off 31 cents to $18.75 on the New York Stock Exchange, lowest since October.
Imperial’s close ties to many smaller tech companies fueled a 37% dive in the stock in April, as tech stocks tumbled.
