First Private brings in new management after BP's stk falls 25% in a week. Credit worries have resulted in management changes at Los Angeles-based First Private Bank & Trust, a private-banking affiliate of Boston Private Financial Holdings (BPFH). First Private's CEO Richard Taylor will retire at the end of March 2008 and be replaced, temporarily, by James Dawson, head of BPFH's private-banking business and president and COO of its Boston Private Bank & Trust affiliate.

In addition, First Private's chief credit officer Wayne Lewis has resigned. He has been replaced -- again on an interim basis -- by Bruce Farrell, chief credit officer of BPFH's San Francisco-based private-banking affiliate Borel Private Bank & Trust. First Private construction-loan officer Robert Franks has also left.

Dawson and Farrell -- who are pitching in at First Private while keeping their other jobs -- and First Private's COO Mary Fischer have been elected to First Private's board of directors.

Context

Last week BPFH said that First Private would increase its loan-loss reserve to between $16 million and $19 million for its quarter ended 31 December 2007. The holding company linked the reserve boost to potential weaknesses in First Private's portfolio of residential construction and land loans -- primarily in California's Inland Empire, an area that spans the state's Riverside and San Bernardino counties.

This and related adjustments would result in "an after-tax impact" on BPFH's fourth-quarter earnings of between $10 million and $12 million, or between $0.27 and $0.31 a share, BPFH said last week. Its stock has fallen by about 25% since then.

"Although current macroeconomic conditions have created a challenging and choppy economic environment in First Private's home market of southern California, we remain confident that this market has attractive characteristics and long-term growth prospects," says BPFH chairman and CEO Timothy Vaill.

Some banks, particularly in areas seeing sharp drops in property values, say that loans to developers have gone bad. More notoriously, institutions that securitized wobbly real-estate loans have declared write-downs totaling more than $100 billion over the last three or four months.

Down cycle

Last week Vaill said BPFH continued "to walk the line between real and perceived credit troubles," and that it had "not incurred any material losses to date on these loans." The increase in loan-loss reserves at First private, he emphasized, was to prepare the bank for what might occur rather than anything that definitively had occurred.

Prior to boosting loss reserves at First Private, BPFH had a "very clean credit profile," says Christopher Marinac, head of research at FIG Partners, an Atlanta-based broker-dealer that specializes in bank and thrift stocks. Last week's news "doesn't look good" for BPFH, he adds, but the management changes at First Private are welcome, says Marinac -- even if they should have occurred before now.

Still, says Marinac, "we're in the middle of classic credit down cycle, so these things are going to happen."

Boston-based BPFH started out as Boston Private Bank & Trust (now one of 16 affiliates) before morphing in the mid 1990s into a holding company for private banks, private-client advisories and institutional money managers. On the wealth-management side, it likes to create "clusters" -- local-market pairings of affiliated wealth advisories and high-end banks. Though cluster affiliates don't push clients, the ability, when asked, to make referrals benefits the firms and their corporate parent, according to Boston Private's president Walter Pressey.

BPFH has wealth-management clusters in New York, Boston, San Francisco and Seattle, and it's looking to complete clusters metropolitan Miami, where it's anchored by Coral Gables, Fla.-based Gibraltar Private Bank & Trust and in Los Angeles, where its local affiliate is First Private. -FWR

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