BIRMINGHAM, Ala. ( TheStreet.com) -- Regions Financial ( RF - Get Report) sagged nearly 5% on Wednesday after an analyst questioned the real reasons behind the abrupt reassignment of its chief credit officer. Regions said late Tuesday that Michael Willoughby, 63, has been named director of credit risk, reporting to Regions' Chief Risk Officer Bill Wells. Tim Laney, currently Regions' senior executive vice president and head of business services, has been named the firm's interim chief credit officer until a permanent replacement is found. He will remain reporting to CEO Dowd Ritter. Regions is conducting a national search to fill Willoughby's post. The role provides a "logical transition" toward Willoughby's eventual retirement, Regions says. In the meantime Laney will be in charge of the company's credit policy, credit servicing, risk rating accuracy and underwriting. Regions said that based on a review of "industry best practices" and in light of the unprecedented credit environment the company realigned its credit approval process by separating it from the process for assessing risk in the company's loan portfolio. The changes are part of an ongoing effort to "clearly delineate" the responsibilities for the credit approval process and the risk assessment process. But Sandler O'Neill & Partners analyst Kevin Fitzsimmons says the abrupt announcement raises questions. "
There was no mention of such a move only a month ago at Regions' Investor Day," Fitzsimmons writes in a note. "Plus, it seems like an odd time to make a change at such a critical position (and with no permanent replacement ready to step in) while the company continues to work its way through a painful credit cycle.
"We suspect that some investors may view the move as a senior executive effectively 'falling on his sword' for Regions deep credit issues, perhaps with some change encouraged/demanded by the board," Fitzsimmons adds. "We also wonder if the move may have been encouraged by external sources, such as new large investors from the late-May common equity raise or even banking regulators." The Southern regional bank, which has large exposure to commercial loans, was told this spring as part of the bank stress tests to raise $2.5 billion in fresh capital. Regions apparently needs as much capital as possible to offset loan losses that will mount throughout the rest of the year. As part of the next wave of the credit crisis, commercial loans have been pressuring many regional banks, including BB&T ( BBT - Get Report), First Horizon ( FHN - Get Report), Comerica ( CMA - Get Report) and M&T Bank ( MTB - Get Report). As of June 30, distressed assets including residential construction and condominium construction loans as well as home equity second liens in Florida make up about 8% of the company's total loan portfolio. The company also said during earnings that retail and multi-family commercial real estate loans are also stressed due to the economy. During the second quarter, it took a provision of $912 million -- nearly triple the amount it took in the year-earlier quarter. Willoughby became part of the Regions management team after the company acquired AmSouth in 2006, where he formerly was employed. He was responsible for implementing a new credit policy and reducing the combined company's exposures to credit concentrations following the merger.
Shares were recently were falling 4.7% to $5.28. Written by Laurie Kulikowski in New York.