Internal Franklin Probe
Finds Accounting Errors
CEO Nocella to Retire Sooner Than Planned
By KEVIN KINGSBURY
May 20, 2008 7:35 a.m.
A board probe at
Franklin Bank Corp. found accounting errors involving its
single-family home-loan business and will result in Chief Executive
Anthony J. Nocella retiring sooner than planned.
Chairman Lewis Ranieri
will be interim CEO of the Houston bank until a replacement is hired.
Mr. Ranieri, former chairman of Salomon Brothers, helped pioneer the
bundling of mortgages into marketable securities, a key element of the
continuing credit crunch.
The 10-week investigation
by the board's audit committee found Franklin didn't properly account
for loan-modification programs intended to reduce delinquencies and
mitigate foreclosure losses, didn't charge off some uncollectable
second-lien loans and didn't record and/or write down some foreclosures
and loan losses.
The board launched its
investigation after being told of certain issues in mid-February. The
six-year-old company then told the Securities and Exchange Commission,
which started its own informal inquiry. Franklin publicized its probe in
March.
Franklin is in the midst
of correcting the quarterly results its Franklin Bank unit gave to the
Federal Deposit Insurance Corp. on April 30. At the time, Franklin Bank
reported a net loss of $35.2 million amid a $63.4 allowance for credit
losses, a $19.8 million provision and $8.5 million of net charge-offs.
Director Alan E. Master
will be Franklin's president until the new CEO is hired. He has more
than 40 years of banking experience and will leave various board
committees while in the executive post.
In addition, a four-person
executive committee -- Messrs. Master and Nocella, director Robert A.
Perro and Franklin Bank President Andy Black -- is being established and
will be responsible for overseeing the bank's day-to-day operations. The
audit committee and Franklin will also adopt a formal disclosure-review
process for all public statements and review board committee charters
and company processes to see if internal-governance strengthening is
needed.
As for its delayed 2007
annual report, Franklin said it still doesn't know when it will be
filed, nor is there a timeline for amendments to its third-quarter
report.
Write to Kevin
Kingsbury at
kevin.kingsbury@dowjones.com1
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