Regions Financial's New Risk Head - Analyst Blog

Regions Financial Corp. (RF) has named Matthew Lusco as the Chief Risk Officer yesterday. This appointment follows the exit of its three senior executives in the Risk management division last month.

Lusco, 53, who has been named as senior executive vice president and Chief Risk Officer, will join the company in early 2011. He will serve as a member of the company's Executive Council and Operating Committee. Lusco comes from KPMG where he was the managing partner in offices in Birmingham, Alabama, and Memphis, Tennessee.

His primary focus was on providing audit and business advisory services to publicly and privately held companies, mainly commercial banks in the southeastern U.S. Prior to joining KPMG, Lusco served as the managing partner at Arthur Andersen's Birmingham, Alabama, office from 1989 to 2002.

Last month, Regions' Chief Risk Officer and the head of Problem Asset Management left the company, while the director of Credit Risk retired. This along with asset quality issues triggered a downward rating action by the rating agencies – Fitch Ratings and Moody's Investors Service, a unit of Moody's Corp. (MCO). Following an annual review of the company's financial performance Standard & Poor's Ratings Services (S&P) also lowered Regions' rating to junk status.

Asset quality concerns have been an issue for Regions for the past several quarters, and the management reshuffle raised fresh concern about the company's course of actions in addressing credit quality issues. Regions has been plagued by souring loans and elevated levels of nonperforming assets for the past several quarters.

It has a significant exposure to the Florida and Georgia markets, both of which are still under severe duress. The company is also yet to pay back its bailout loan under the Troubled Asset Relief Program.

Regions Financial reported a net loss of 17 cents per share, missing the Zacks Consensus Estimate of a loss of 10 cents per share. Results were significantly impacted by the continued de-risking of the balance sheet and the high disposition of problem assets. Recent legislative actions have also impacted the company's non-interest income.

With the departure in management, the risk mitigation initiatives and pace of recovery remained uncertain. However, we keep our fingers crossed at this moment and wait for the response of the new senior executive on risk management issues.

Nevertheless, we believe that the favorable funding mix and an expected improvement in the economy in the coming quarters would support the company's earnings.

Regions currently maintains its Zacks #3 Rank, which translates to a short-term ‘Hold' rating. Considering the fundaments, we also retain a ‘Neutral' recommendation on the stock.

 
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