Wilmington Trust: To Sell Or Not To Sell?

Following reports that Wilmington Trust Corporation WL was in search of capital from private-equity firms, the bank's shares sank in October to lows not seen since the early 1990s. The stock's decline indicated that shareholders were concerned that the bank's advisors had shopped it around to buyers who weren't happy with what they saw on the books, thus leaving private-equity money as the only option, Barron's reports. Its main problem is a reportedly a very troubled portfolio of real-estate construction loans. “The bank cut its quarterly dividend to a penny a share last year, and CEO Ted Cecala left in June after 14 years,” writes Barron's Erin E. Arvedlund. “Investors and analysts speculate his replacement, board member Don Foley, would sell the bank if forced to, but only to a friendly buyer who promised to keep the bank intact.” But will it come to that? Founded in 1903 Wilmington Trust has had five consecutive quarters of losses, and its stock price is off more than 70% over three years, dropping its market cap to about $725 million. The stock trades near the bank's tangible book value of $7.95 a share. According to Andy Stapp, a senior analyst at B. Riley & Co. outside Philadelphia, Wilmington could fetch $9 to $11 a share if it sold a minority interest. As far as making a bet on the stock, Stapp suggests holding off for now. He's expecting a sixth straight loss of 33 cents per share when Wilmington reports its 3Q earnings on November 1. If the bank has to be sold, Richard Bove, a bank analyst with Rochdale Research, says that among potential buyers, Northern Trust Corporation NTRS and PNC Financial Services Group PNC are prime candidates. However, Bove warns that the whole thing is a crap shoot and that any company interested in a struggling bank like Wilmington Trust has to have faith that the auditors and regulators have produced accurate figures.