Huntington Exec Leaves, Spurring Sale Talk

Marty Adams was seen as the likely successor to CEO Thomas Hoaglin.
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The departure of the likely successor to

Huntington Bancshares

(HBAN) - Get Report

CEO Thomas Hoaglin has some observers suggesting that the regional bank should put the "for sale" sign on the door.

The Columbus, Ohio-based bank said Monday that Marty Adams, Huntington's president and COO, will retire at the end of the month. Adams was previously the CEO at Sky Financial, which Huntington acquired in July.

As part of the terms of the deal, Adams, 55, was set to succeed Hoaglin as Huntington's CEO in December 2009. Hoaglin was to remain chairman until 2011, but his plans to retire "are no longer in effect," Huntington said on Monday.

But Adams' so-called retirement comes just two weeks after Huntington disclosed that it would

take an after-tax charge of up to $300 million, or 81 cents a share, and post a net loss in the fourth quarter related to an increase in the allowance for loan losses tied to its exposure to subprime lender

Franklin Credit Management

(FCMC)

. Huntington, which had $1.5 billion of loans out to Franklin Credit at the end of the third quarter, inherited the commercial relationship through its acquisition of Sky.

At least one analyst believes the company's probability of a sale is "high," considering the scrapped succession plan and ongoing problems with Franklin Credit.

The departure of Adams and "related actions increase the probability that

Huntington will be sold as this is a major blemish on management," writes Andrew Marquardt, an analyst at Fox-Pitt, Kelton Cochran Caronia Waller. Marquardt adds that Huntington executives "arguably did a good job improving stand-alone fundamentals over the years, but failed to properly realize the magnitude of

Franklin Credit's relationship with the

Sky Financial deal."

Adams, who will serve as a consultant to Huntington for one year to assist with matters relating to Franklin Credit, is the latest banking executive to fall victim to the intensifying credit crunch and deterioration in the mortgage industry.

Since August, a number of high-profile names have departed from their respective firms, including

Merrill Lynch

(MER)

CEO Stan O'Neal,

Citigroup

(C) - Get Report

CEO Chuck Prince and, more recently,

Morgan Stanley

(MS) - Get Report

Co-President Zoe Cruz. Each left their firms under the cloud of billions of dollars in writedowns related to the sharp decline in mortgage-related securities.

Huntington has been the subject of takeover chatter by market speculators for years.

Larger Midwest banks, including

Fifth Third

(FITB) - Get Report

,

KeyCorp

(KEY) - Get Report

,

National City

(NCC)

and

JPMorgan Chase

(JPM) - Get Report

(through its 2004 acquisition of BankOne), could be interested in picking up Huntington, as there would be substantial cost savings involved in the deal, observers say.

Marquardt predicts Huntington could get between $17 and $22 a share in a sale.

A spokeswoman for Huntington declined to comment on whether it was considering a sale.

Still, shares of Huntington closed essentially flat on Monday at $15.67 and were dipping more than 2% along with the wider financial sector at midday Tuesday. The stock is down more than 30% this year.

Observers say investors could be concerned that more charges are forthcoming as a result of Huntington's relationship with Franklin Credit, not to mention anything else in Huntington's $40 billion loan portfolio.

Huntington said in November, at the time of the announcement of the charge, that the company believed the provision "fully addressed" the issues.

Tony Davis, an analyst at Stifel Nicolaus, says Huntington's loans to small businesses in northern Ohio and eastern Michigan, indirect auto exposure (15% of loans) that is likely to under go stress, "clearly makes you suspicious of what credit is going to be like" going forward.

"They may have gotten their arms around

the Franklin Credit, but it very much remains to be seen at the rest of the portfolio," Davis says.

Still, Huntington's branch network -- primarily located in slow-growth areas of the Midwest -- and the difficult current banking environment -- particularly if there are problem loans still on its books -- could put the brakes on a sale, says Terry McEvoy, an analyst at Oppenheimer.

"These types of events and the frustration that occurs internally can force some pretty large decisions -- like selling out," McEvoy says. "Is now the best time for your shareholders to sell from a significant position of weakness? No."

McEvoy says it's too "premature" to say that the company "needs to be sold."

"The reaction among some investors will be the

Sky-Huntington deal is a failure and the company should be forced to sell itself. That will be one option," McEvoy said. But "it's less than one year into the acquisition and less than six months into integration. It's too early to say that this acquisition is a failure and that dramatic changes need to be taken."

Furthermore, any potential buyer likely will want to scrutinize Huntington's loan portfolio and question errors made with the Franklin Credit loan relationship -- and determine if there are others, McEvoy says.

"A buyer is going to take a lot of time to go through the loan portfolio," he says. "Foreign financial institutions are petrified of U.S. credit quality and will remain on the sidelines until they are comfortable.

If a competitor were to buy Huntington, the financing of the cash aspect of an acquisition right now is quite expensive. So it's much more than saying Huntington is now willing to sell."