From the perspective of a financial columnist, Puerto Rican bank Doral (NYSE:DRL) is a bit like the golden goose. Once a fantastic growth story, the stock has gotten blasted as the company has been forced to restate earnings due to overly aggressive valuation assumptions on certain interest-sensitive products.
Another shoe has now dropped as the company has shaken up the management team. Gone will be long-time CEO Salomon Levis, Director Emeritus David Levis, Treasurer Mario Levis, and CFO Ricardo Melendez. While Mr. Melendez had only been CFO since 2004, he had previously held the title of chief accounting officer since 1995 and had been with the company since 1991. Perhaps it's little more than a matter of semantics, but it's interesting to note that the members of the Levis family resigned, whereas Mr. Melendez was fired.
Replacing Salomon Levis in the big chair will be John Ward, the man appointed as non-executive chairman back in July. For now, this is an interim appointment and the board will be looking for a permanent replacement.
It should also be noted that this will not be a total break of the relationship between the Levis family and Doral. Zoila Levis will be kept on as president and chief operating officer and has been named vice chairman of the board. Recalling that the Levis family together owns about 8% of the stock, this is not entirely surprising.
So what should investors make of this shake-up?
It's easy to be spooked by the fact that this move appears to have been instigated by a report from the independent council serving the outside directors of the board. That said, I don't think there was much doubt that there had to be changes at the top. Given the apparent magnitude of the accounting changes involved, there was just too much money involved for top management to stay on with the company.
Although Salomon Levis (and the other family members in management) deserve some kudos for growing Doral to this point, a change will make it easier for Doral to put this matter squarely in the past. I'm not going to cast judgment on their behavior -- aggressive accounting is not necessarily a fireable offense -- but given the apparent scale of the restatement, it will be hard enough to restore investor confidence without the prime actors remaining at the company.
I would expect this announcement to rattle the stock a bit. First, some will question whether the company can continue to grow without the Levis family running the show. Others will wonder whether these moves aren't the tip of a much uglier iceberg and a sign of even more bad news to come.
On a more positive note, the man now in charge has a strong background (including experience at American Express (NYSE:AXP) and Chase Manhattan bank - now part of JPMorgan Chase (NYSE:JPM)) in the banking business. What's more, the company still appears to be solvent and growing. While risk-averse investors would still do well to stay away, this could be yet another buying opportunity for aggressive investors who can afford the possibility that things may in fact be much worse at Doral than we presently know.
For past takes on the mess at Doral:
Doral is a Motley Fool Inside Value recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
