With Joseph P. Campanelli as Sovereign Bancorp Inc.'s interim chief executive, analysts and investors expect a tight focus on profitability rather than expansion.
They may not be disappointed. During a conference call with senior management, Mr. Campanelli outlined a time frame of three to five years to improve Sovereign's performance, according to a source with knowledge of the call, and he has assured them the board is unanimous in thinking that an immediate sale is not in its best interest.
Mr. Campanelli, 50, a vice chairman at the company who was named the interim CEO after Jay S. Sidhu's resignation early Wednesday, reportedly said during a call that day with the senior managers that he is aiming for several contiguous quarters of earnings growth, despite the difficult operating environment.
However, the source also said that an eventual sale of Sovereign remains likely.
Mr. Sidhu, 55, who had come under harsh criticism for the way he ran the $89 billion-asset Philadelphia company, will remain its nonexecutive chairman until yearend. Mr. Campanelli will report directly to the board.
Sovereign has said that it will conduct a search for a new CEO, and that Mr. Campanelli will be considered for the role.
An executive reshuffling had been widely anticipated.
Michael Diana, a Citigroup Inc. analyst, downgraded Sovereign's shares Wednesday morning for the second time this week. He wrote in a research note that he believes a quick sale is less likely now the management change has taken place.
On Monday, Mr. Diana downgraded the shares to "hold," from "buy," in response to rumors of Mr. Sidhu's pending departure. On Wednesday the analyst cut his rating to "sell."
However, Laurie Hunsicker, an analyst with Friedman, Billings, Ramsey & Co. Inc., said she believes Sovereign could be sold within a year. "The question is when, for how much, and to whom."
Analysts and investors said Mr. Campanelli's top strategic priority is likely to be the integration of Independence Community Bank Corp., the Brooklyn, N.Y., company that Sovereign bought June 1.
"Growth through acquisition is done for the foreseeable future," and the time is not right to build branches, Ms. Hunsicker said.
John Murphy, the head of the Bay State Federal Savings Charitable Foundation, a Sovereign shareholder, said that if Mr. Campanelli "goes in there aggressively, saying, 'We are not growing the company, we are going to grow earnings; we'll concentrate on shareholder value; we'll start shaving operating cost,' all the positive things that a CEO taking over this company should be doing … then he could be the surviving CEO."
The Independence acquisition, Sovereign's largest and most controversial one, met with sharp disapproval from many shareholders. Sovereign financed the $3.6 billion purchase in part by selling a 19.8% stake in itself to Banco Santander Central Hispano SA on May 31, further infuriating shareholders.
The San Diego fund manager Relational Investors LLC, which had previously been Sovereign's largest shareholder, accused it of trying to avoid seeking shareholder approval for the Santander transaction. The dispute was settled in March, when Relational got two seats on Sovereign's board.
Over the summer Santander increased its stake to almost 25% and has an option to acquire Sovereign outright after June 2008, but Sovereign's board can invite the Madrid company to make an offer at any time. In recent weeks Mr. Sidhu had indicated that Sovereign could consider another company's bid rather than go it alone in the current operating environment.
Rumors about Mr. Sidhu's future had been building since Friday, and a board meeting on Tuesday lasted until midnight. In the early hours of Wednesday, Sovereign announced that Mr. Sidhu had "resigned and retired" as the CEO, citing "family health reasons." He had held that position since 1989.
Sovereign would not make Mr. Campanelli or Mr. Sidhu available for an interview, and a spokesman for the company would not comment beyond its press release.
Mr. Campanelli has been a strong ally of Mr. Sidhu's in building Sovereign, according to analysts. He joined the company in September 1997 when it acquired Fleet Financial Group's indirect auto lending business. He became the head of the New England business in 1999, after Sovereign bought 268 branches from FleetBoston Financial Corp.
Mr. Murphy and Frank Barkocy, the director of research at Keefe Managers Inc., another Sovereign shareholder, said they are satisfied with the change.
However, Joseph Fenech, a Sandler O'Neill & Partners LP analyst, wrote in a research note, "Investors hoping for a clean break from the Sidhu regime are likely to be somewhat disappointed."
