Commerce Bancorp Inc. on Friday announced the sudden departure of Chairman and Chief Executive Vernon Hill and said it had agreed with federal regulators on governance changes after coming under fire for its business dealings with insiders.
Analysts said Hill's exit makes New Jersey's largest bank a target for a takeover, which Hill had long resisted. Commerce executives would not rule out that possibility but pledged to continue rapidly opening branches to fuel growth. Commerce shares rose as much as 11.4 percent in early trading.
Hill, 61, will retire on July 31 from the Cherry Hill-based company he founded 34 years ago. He stepped down immediately as chairman and chief executive of its banking unit.
It's shocking, said Mark Fitzgibbon, director of research at Sandler O'Neill & Partners LP. He had been on the road marketing the company to investors after the bank said it expected to settle things. He always said he loved his job.
Robert Falese, who has been president of commercial and investment banking, is expected to replace Hill as chief executive. Commerce created an office of the chairman for the bank unit, including Falese as chief executive, Dennis DiFlorio as chairman and Douglas Pauls as chief financial officer.
Commerce agreed to governance changes in a consent order with the Office of the Comptroller of the Currency, and also signed a memorandum of understanding with the Federal Reserve Bank of Philadelphia.
Among the changes are a ban on new real estate and vendor deals with insiders, a review or termination of prior deals, and a restructuring of some board committees.
The company previously disclosed a variety of business dealings with insiders, including property leases with entities in which Hill was a partner and the purchase of services from an architectural design business run by Hill's wife, Shirley.
Mr. Hill and the board agreed that his departure is in the best interest of the company, Pauls said on a conference call. These related-party transactions have become a distraction.
Commerce said nothing had come to light to hasten Hill's exit since June 12, when the company announced the potential for regulatory settlements.
In morning trading, Commerce shares were up $2.90, or 8.6 percent, to $36.71 after earlier rising to $37.68.
Commerce is now in play, wrote Gary Townsend, a Friedman Billings Ramsey & Co. analyst. He said the company could fetch $43 to $51 per share, or as much as $9.8 billion.
INNOVATIONS, WITH REGULATORY PROBLEMS
Likening Commerce to retailers such as Whole Foods Market Inc., Hill tried to make banking more enjoyable for customers. He spent twice as much as rivals to open each branch, rejected installing bulletproof glass to shield tellers, installed free Penny Arcades to count change, and was a leader in opening branches on weekends. Commerce has long fared well in independent customer satisfaction surveys.
But the bank has struggled in recent quarters with tight lending margins. It has also had other governance problems, including ties to a 2004 Philadelphia corruption probe that led to prison sentences for two former bank executives.
The latest probes, announced in January, had stalled branch expansion, a key to profit growth. Commerce plans to open 50 to 55 branches this year, down from its earlier forecast for 65.
Commerce ended March with 437 branches, mainly in the New York and Philadelphia metropolitan areas, as well as in Washington, D.C., and Florida. It had $47.4 billion of assets and $44 billion of deposits.
Hill has long resisted takeovers, telling Reuters last year that Commerce's banking model was too hard to replicate and that any larger acquirer would destroy what they bought.
On the conference call, DiFlorio said Commerce plans to stay the course with what is working so well for us, which is de novo expansion. He nevertheless said Commerce would review any transaction that makes good strategic sense.
Fitzgibbon expects many suitors. If they put up a 'for sale' sign, there will be a line around the block, he said. Any U.S. or foreign banking behemoth would be interested.