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Banc of California encounters optimism, activism following surprise exec change

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Banc of California encounters optimism, activism following surprise exec change

A series of events, mischaracterizations and an SEC investigation preceded the surprise resignation of Banc of California Inc.'s Chairman and CEO and has led to uncertainty surrounding the company.

The bank disclosed that Chairman and CEO Steven Sugarman resigned in a Jan. 23 press release, a week before the company is slated to announce fourth-quarter 2016 earnings and nearly a week after it received an SEC subpoena. Shares tanked on the news, losing 9.29% to $14.65 on Jan. 23. Sell-siders found some upside in the disclosures and seemed positive on the management change, though the securities investigation is a near-term headwind, but an activist urged the company to consider a sale.

"While we don't know for sure, we suspect inaccurate statements in the October 19th press release by the company … in conjunction with the SEC investigation, were the primary catalysts for Sugarman's resignation," wrote D.A. Davidson analyst Gary Tenner in a Jan. 23 report.

The company did not return a request for comment. The CEO resignation and SEC investigation stem from the bank's response to certain allegations made by an anonymous blogger that company executives and board members had ties to Jason Galanis, who has been charged with market manipulation and several counts of fraud.

In Sugarman's absence, the company appointed director Robert Sznewajs as its new chairman, Chief Risk Officer Hugh Boyle interim CEO, and Chief Strategy Officer and Principal Officer J. Francisco Turner interim CFO and president. It also made changes to its corporate governance policy, including separating the CEO and chairman roles. Boyle and Turner will head the interim office of the CEO/president while the board looks for a candidate to fill the vacated post. Tenner wrote that he viewed the changes in executive leadership as "a positive" for the bank and that he was "encouraged" by the investigation's progress.

FIG Partners analyst Tim Coffey increased his rating on the bank's stock to "market-perform," writing in a Jan. 23 report that "the worst of the news is public."

"There could be monetary penalties for the alleged misstatements, but we believe those could be presently reflected in the stock price," he wrote, adding that changes could come to operations and strategy that could lead to short-term headwinds for earnings if the interim management focuses on core banking activity.

But the board was also urged to explore strategic alternatives by investor Legion Partners Asset Management LLC and reported by Reuters on Jan. 24. Legion Partners, which reported a 6.3% stake in the bank, said it lost confidence in the board and had concerns about corporate governance. To improve corporate governance, the bank said it separated its compensation, nominating and corporate governance committee into two separate committees, and the company is developing a "more rigorous policy" regarding proposed related party transactions, according to a Jan. 23 company press release. Legion Partners instead urged the board to hire an independent financial adviser and form a special committee of independent directors to consider all strategic alternatives, including a sale.