Updated from Tuesday, Oct. 28

The top executive at a midsize bank holding company is retiring with a more than $12 million payday, even as the company is applying for a government investment that could restrict such windfalls.

The South Financial Group ( TSFG) on Tuesday said Chairman, President and CEO Mack Whittle had left his post, effective Monday. Whittle had earlier said he would leave by the end of the year, and during a conference call to discuss the company financial results last week he made no indication the timing had changed.

The unexpectedly sudden departure comes just days after the bank announced it plans to apply for a federal investment through the Troubled Asset Relief Program, or TARP, which contains provisions that void existing compensation agreements in order to prevent "golden parachutes."

"The timing is precarious as hell," says Adam Barkstrom, analyst with Sterne Agee.

Barkstrom wonders whether regulators insisted that Whittle be relieved of his responsibilities as a condition of participation in TARP. Another possibility, he suggested, is that the decision was driven by the company to protect Whittle's compensation from TARP.

Asked about the timing of Whittle's departure, the South Financial Group spokeswoman Mary Gentry said only the management transition is "moving smoothly." She downplayed any connection between Whittle's departure and the company's TARP application.

"The company is living up to the terms of an agreement entered into prior to the creation of TARP and we had no choice but to honor our obligations. Mack's the founder of the company and this contract reflects his years of service," Gentry says.

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