PhillyDeals: CEO's retirement could mean sale of Wilmington Trust

Even before the recession, Philadelphia's Center City office district still hadn't recovered from the sale of its big banks in the 1980s and '90s.

More than 10,000 jobs and a cadre of corporate leadership vanished as bosses and shareholders cashed out. Center City's Class A office occupancy and rents haven't grown since that exodus. Neither Comcast Corp.'s growth nor the big out-of-town banks - Wachovia Bank owner Wells Fargo & Co., PNC Bank, Royal Bank of Scotland's Citizens Bank, Toronto-Dominion's TD Bank - have quite filled the void.

It didn't have to be this way.

Nearby Wilmington is still home to a couple of multibillion-dollar banks. Packed with locals, the boards of market leader Wilmington Trust Co. and smaller rival WSFS Bank have so far resisted

takeover offers.

The pair compete with the big regional banks for business and home loans. Their executives pack local charity boards and arts subscription lists. They occupy headquarters towers on either side of the DuPont Co., breathing life into the city's modest high-rise district, at least during working hours.

So it was a jolt when Wilmington Trust chief executive officer Ted Cecala abruptly resigned earlier this month after 14 years in charge, on the eve of a scheduled federal exam of the bank's faltering loan portfolio.

He was replaced without an executive search by board member Donald Foley, ITT Corp.'s treasurer, who says his only previous banking experience was "as a borrower." Analysts immediately began to speculate that Wilmington Trust was being prepared for sale.

Cecala insisted it was his idea to leave. Foley said the bank "is committed to remaining independent."

"I don't think it was a scheduled retirement. Scheduled retirements aren't announced that way," Gerard Cassidy, bank analyst at RBC Capital Markets Corp., said.

He puts the likelihood of a sale at "30 to 40 percent" and says nothing should happen until the government finishes its exam this fall. If an economic recovery helps Foley succeed, Wilmington Trust could avoid a takeover by possible buyers such as Northern Trust Corp., Bank of New York Mellon Corp., or PNC, Cassidy said.

The stock, already down to where it was 14 years ago when Cecala took over, fell an additional 11 percent last week when Mac Hodgson, bank analyst at SunTrust Robinson Humphrey Inc., came back from a meeting with Foley to report the bank faces higher-than-expected loan-loss reports under the new boss' conservative credit regime. "We were surprised," he told clients in a report.

Foley blames Wilmington Trust's troubles on a multimillion-dollar rush of loans to retirement-community developers on the Delaware Shore, from Rehoboth to Ocean City, Md.

The bank reports hundreds of millions of dollars of its construction loans aren't getting paid, as the wealthy residents who were supposed to retire at the shore found they couldn't sell their old homes to make the move in the dead real estate market.

Those loans will clear when housing recovers, Foley said at the bank's headquarters on Wilmington's Rodney Square. Meanwhile, his job is "to bring a new perspective, more process, more risk control" to its Delaware- and Philadelphia-centered commercial-banking business. He will try to boost sales of Wilmington Trust's unusual mix of investment and corporate services through an office network stretching from London to Las Vegas.

Wilmington Trust shares have lost more than half their value since 2008.

WSFS is down just half as much, reversing the two banks' roles from the last banking crisis in the early 1990s, when WSFS made too many dumb real estate development loans and nearly got taken over by the Federal Deposit Insurance Corp. It was rescued by a new chief executive, Marvin "Skip" Schoenhals.

After that, WSFS limited its residential-construction exposure to 10 percent of loans, half or less Wilmington Trust's concentration. "Those guys across the street really [chased] the residential development," and they're suffering for it, Schoenhals said in an interview at the Hotel du Pont last winter, after his retirement.

Schoenhals says independent banks are important to cities like Wilmington.

"Our customers may not always agree with the decisions we make about loans and fees," he said. "But during this economic crisis, people are coming to us because we're perceived as secure, and because they can come and talk to our decision-makers, face to face."