Today's 11% drubbing had nothing to do with the earnings report which, while mediocre, was not a disaster. In the conference call the CEO (Gary Crosby) announced a "common rails" technology initiative that will cost about $80 million in 2014, and likely additional amounts in 2015/16. The payoff, he said, wouldn't be visible until 2017/18 (!!) when ROA should be in the 1.15%-1.25% range. In the meantime, the ROA, the EPS & the efficiency ratio would all suffer, he said. When asked how investors will be able to guage--before 2017/18-- whether the common rails initiative is having the desired effect, the CEO said that he'd report in quarterly conference calls whether the initiative is on schedule & on plan (with data??).
If Mr. Crosby had a record of having accomplished a technology & earnings turnaround in a banking environment, perhaps I'd have more confidence in his near/mid-term pain for long-term benefit vision. Also, it would help if analysts could point to other banks that have successfully pursued a similarly significant investment in "common rails."
Unfortunately, at this point we only have the CEO's generalized expectations to rely on. And even if he's proven correct with his prediction, he's provided no reason for investors to hold onto FNFG shares for the next 2+ years.
More specific on costs--Now we’ll be investing $200 million to $250 million over this three to four year period that will address our common rails initiative.
Most interesting comment-.
Josh Levin - Citi Research
Okay. And then, the follow-up question to that is, why should shareholders wait three to four years for you to build out the infrastructure when an acquirer could buy the bank and they have the infrastructure already, they could put you on their platform and they could integrate you with considerably shorter time of three to four years?
My general take on the conference call. Gary Crosby is asking for a 4 year window to turn the company around. The new initiative called common rails .
As a long term shareholder we have been promised and waited for multiple years from the previous CEO for the multiple bank purchases to positively play out. He is finally replaced after years of underperformance by another insider who says he needs another 4 years to cash in on the purchases through a technology initiative. Josh Levin is correct shareholders deserve better. Put FNFG up for sale and lets see what a buyer is willing to pay to unlock the value in which management has overpromised and failed to deliver.