Financial Services

Sovereign shares bounce back
as bank names new CEO

COURTESY SOVEREIGN BANCORP INC.
“I’M EXTREMELY PROUD of my tenure at Sovereign Bank,” departing President and CEO Joseph P. Campanelli said in a statement. “In 2001, we set out to make Sovereign a household name. I’m happy to say we accomplished that goal, while building a great franchise in retail and commercial banking.”
Posted 9/30/08

PHILADELPHIA – Sovereign Bancorp Inc. (NYSE: SOV) today announced that Paul A. Perrault will take over as president and CEO effective Jan. 3. He will replace Joseph P. Campanelli, Sovereign’s president and CEO since October 2006, “who is leaving the bank to pursue other family and business interests,” the company said.

“As part of the management change,” Sovereign added in a midday statement, “Kirk W. Walters, Sovereign’s executive vice president and chief financial officer, is being promoted to senior executive vice president, chief financial officer and chief administrative officer.” Walters will serve as interim president and CEO until Perrault’s arrival.

Sovereign shares – which yesterday had tumbled 72 percent to an official close of $2.33, in the U.S. House of Representatives, of the federal bailout-bill (READ MORE) – surged on today’s announcement.

The stock peaked shortly after 1:30 p.m. at $5.25 per share – in what Bloomberg was calling its biggest intraday gain since August 1986 – before retreating to end the session up $1.62 per share, or 70 percent, at $3.95. The rise came amid a broader market rally that saw the Dow Jones Industrial Average gain 485.21 points, or 4.7 percent, to end the day at 10,850.66; the Standard & Poor’s 500 rise 58.35 points, or 5.3 percent, to 1,164.74, erasing more than half yesterday’s 8.8-percent decline; and the Nasdaq Composite gain 5 percent to close at 2,082.33 points, Bloomberg News said in its market wrap-up report.

The announcement also drew smiles from analysts. “The proposed change would reunite two well-respected managers from a very well-run regional bank, which we consider to be a strong positive,” Joseph Fenech and Casey Orr of Sandler O’Neill & Partners wrote in a report today, Bloomberg said. “With the recent decline in the stock, we think the risk/reward tradeoff no longer favors selling the stock at the current level,” they said, raising the stock from “sell” to “hold.”

Perrault was selected by an executive search committee whose three members – Gonzalo de Las Heras, an executive vice president of Banco Santander S.A., which owns 24.9 percent of Sovereign ; Ralph V. Whitworth principal of Relational Investors LLC, which owns 9.8 percent ; and Brian Hard, president of Penske Truck Leasing – all were drawn from the company’s board of directors.

“With our business experience and major investments in Sovereign we believe we have an excellent understanding of what kind of executive leadership Sovereign needs,” the trio said in a statement today.

They chose Perrault – after “an extensive and vigorous search process involving a number of highly qualified candidates” – “because of his strong and seasoned banking skills and because of his impressive leadership record, which is punctuated by conservative risk management and strong customer-centric fundamentals,” the search panel said.

“Paul’s background and proven record of leadership mesh perfectly with the no-glitz, back-to-basics formula Sovereign’s board has laid out for these challenging times,” the panel continued. “We were particularly impressed with the work Paul and Kirk did together at Chittenden Corp., a New England-based regional bank which operated in many of Sovereign’s markets before being acquired by Peoples United in 2007.”

Walters, who joined Sovereign this March, had worked with Perrault as Chittenden’s executive vice president and chief financial officer.

Perrault had served as Chittenden’s CEO starting in 1990 and its chairman and CEO from 1998 to 2007. He previously had worked in various senior and executive positions in banks throughout New England. A graduate of Babson College in Wellesley, Mass., he holds an MBA from Boston College’s Carroll School of Management.

“I’m excited to lead one of the great banking franchises in the Northeast,” Perrault said today. “This is a time of significant challenges in the financial industry. We will meet those challenges by simplifying our business model, reducing risk and improving our service and products for all our customers,” he added.

The search panel echoed his comments, saying: “As we face the current challenges in our industry we know that there is a high premium on risk management, basic ‘blocking and tackling,’ and an intense focus on core banking principles. The volatility in the stock price this week underscores those challenges.”

The panel stressed that “Sovereign is well capitalized, according to all regulatory requirements,” with “unused committed liquidity of $12.0 billion from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve.

The company “has undertaken a methodical process to reduce risk in recent months, including the liquidation of its entire CDO portfolio,” they added, and it “has only $200 million in debt maturing over the next 15 months at the holding company,” they added. The bank “is fundamentally sound by all financial and operational measures.”

The searchers went on to thank Campanelli “for his hard work and dedication to Sovereign and to the communities the bank serves. He is leaving a bank that is on solid financial footing, in one of the most economically desirable regions of America, led by a strong management team,” they said.

“I’m extremely proud of my tenure at Sovereign Bank,” Campanelli said in a statement. “In 2001, we set out to make Sovereign a household name. I’m happy to say we accomplished that goal, while building a great franchise in retail and commercial banking.”

Sovereign Bancorp Inc. (NYSE: SOV), the parent company of Sovereign Bank, has 750 community banking offices, more than 2,300 ATMs and about 12,000 employees, mostly in the Northeast. For additional information, visit www.sovereignbank.com.

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