Magazine article American Banker

Finova Gets It with Both Barrels -- Takes $80M Hit as Chief Quits

Magazine article American Banker

Finova Gets It with Both Barrels -- Takes $80M Hit as Chief Quits

Article excerpt

Finova Group Inc. announced on Monday the immediate departure of its longtime chief executive officer, Samuel L. Eichenfield, and an $80 million charge that would leave its first-quarter earnings shy of projections, a pair of moves that stunned Wall Street and sent the company's stock price into freefall.

More trouble may be ahead, analysts said. Finova said it has about $50 million in exposure to two companies in the troubled health-care sector, but added that it was too early to tell whether it would have to write off those loans.

Finova's competitors, most of them regional banks that specialize in middle-market lending, have also disclosed problem loans to the health-care sector. In recent months Amsouth Bancorp. in Birmingham, Ala., SunTrust Inc. in Atlanta, and Hibernia Corp. in New Orleans have all announced earnings hits because of exposure to health-care companies that have suffered from recent changes in Medicare rules.

Analysts said Finova's announcement on Monday raises questions about its near-term prospects. Ratings agencies have yet to announce whether they will take any actions regarding Finova's debt, but meetings with the company are expected this week.

Mr. Eichenfield, 62, decided to take an early retirement after 13 years as president of the Scottsdale, Ariz., commercial finance company. He has been chairman and chief executive officer of Finova since its spinoff from Dial Corp. in 1992.

Finova also disclosed it would write off a $70 million loan to a "major customer" of its inventory finance group and would charge another $10 million to first-quarter earnings to pay for severance and deferred compensation for Mr. Eichenfield, the company said.

Matthew M. Breyne, who was named president and chief executive officer of Finova, said the timing of the two announcements was entirely coincidental. …

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