Orange County’s financial sector didn’t feel the love in 2018, especially when compared to other area industries. Bad headlines outpaced good headlines, when wealth managers and those running banks were involved.
Here’s a listing of the top news finance stories we covered over the course of this year:
Executive Shake-Up
Stephen Gordon, who founded Opus Bank (Nasdaq: OPB) in 2010, was unceremoniously dismissed as chief executive and a member of the board in November.
An investment banker in the 1990s, he successfully ran Irvine-based Commercial Capital Bancorp, which was sold in 2006 to Washington Mutual for $1 billion.
Then he built Irvine-based Opus to $6.1 billion in assets and a market cap that topped $1 billion. When he ran into problematic loans in 2016, he had to tighten lending standards, raise capital and suspend its dividend. Shares gradually recuperated to their initial public offering level of $30.
In October, its stock took another tumble after Opus reported profit that missed analysts’ consensus estimates; shares fell 22% that day.
Like competitors, Gordon attributed the miss to rising interest rates that increased the costs of deposits.
It didn’t matter. The board named Chairman Paul Greig as interim chief executive and hired Korn Ferry to conduct an executive search.
Banking Blues
It wasn’t only Opus feeling the pain of rising interest rates.
The KBW Nasdaq Regional Banking Index had fallen 14% for the year as of press time. Shares of all five of OC’s biggest banks were down even more.
The four other biggest banks with OC headquarters were having a fine first half of 2018 before storm clouds gathered in July and a full-force gale decimated them in October.
First to feel the pain was Irvine-based First Foundation Inc. (Nasdaq: FFWM), which missed second-quarter investor expectations, citing higher interest rates.
Irvine-based Pacific Premier Bancorp (Nasdaq: PPBI) was flying high earlier in the year, buoyed by its stock topping $45 in June and its purchase of Grandpoint Capital Inc., making it the largest OC-based bank by assets, with $11.5 billion.
Then in October, the bank reported profit below analysts’ consensus estimates, and its shares declined to below $27 each.
Three days after announcing its results, Steve Gardner, the bank’s hockey-loving chief executive, decided he would fight Wall Street’s view, declaring that Pacific Premier would buy back up to $100 million in shares.
“We believe that the current market price of Pacific Premier’s common stock does not accurately reflect our franchise value,” he said in a statement.
That didn’t help much, as shares hovered around $28 at press time.
Costa Mesa-based Pacific Mercantile Bancorp (Nasdaq: PMBC) was doing well until September, when shares were a bit above $10 each. Then its biggest shareholder, Carpenter & Co., was forced to sell its stake in a block sale for $8.25 a share due to the closing of a fund. Shares hovered around $7.35 at press time.
Shares of Santa Ana-based Banc of California (NYSE: BANC) also fell after third-quarter results failed to meet analysts’ expectations. In the 19 months since Chief Executive Doug Bowers was hired to right the problems created by predecessor Steven Sugarman, shares have dropped 26%.
To top off its problems, Banc of California announced in March that it was hoodwinked out of $13.7 million by a fraudulent line of credit opened six weeks earlier.
Gross Returns
Onetime bond king of the decade Bill Gross continued a downward spiral.
In May, the Janus Henderson Global Unconstrained Bond Fund, or JUCIX, reported an unheard-of one-day drop of 3% as Gross bet the wrong way on how German bonds would react to turmoil in Italy.
The fund, managed from his office in Newport Beach, was down 5.1% year-to-date, trailing his benchmark by 470 basis points, and ranked 92nd in its category on Morningstar.
Investors fled as the fund’s assets fell by more than half to $1 billion.
Since Gross’ 2014 departure from Pacific Investment Management Co., which he co-founded in the early 1970s, his fund hasn’t beaten its benchmarks.
Not that his former colleagues at Newport Beach-based Pacific Investment Management Co., one of the world’s largest wealth managers with $1.7 trillion, could cheer much.
PIMCO Income Fund (PIMIX), its biggest fund, with $110 billion in assets, was up only 0.07% for the year, and Total Return (PTTRX), Gross’ old fund, was down 0.8%.
Pub Co. Wobbles
Shares for only about a third of the 80-plus largest publicly traded companies based in Orange County were up year-to-date as of press time.
Winners included Glaukos Corp. (NYSE: GKOS), Alteryx Inc. (NYSE: AYX) and Ensign Group Inc. (Nasdaq: ENSG), which doubled their share prices over the course of the year. Losers that fell more than 80% included Adomani Inc. (Nasdaq: ADOM), which moved to Corona in Riverside County, and Endologix Inc. (Nasdaq: ELGX).
On the Bright Side
OC’s financial world wasn’t a total disaster this year.
Joe Duran continued his astronomical climb among the country’s largest registered investment advisers. Newport Beach-based United Capital Financial Advisers LLC, which he started in 2005, reported more than $21 billion in assets when the Business Journal profiled him in June. Six months later, it’s up to $23.3 billion.
Costa Mesa-based CerraCap Ventures LLC, which the Business Journal profiled in September, reported its first successful exit a week ago when the sale of Swych resulted in a 4.3 times return.
Alliant Insurance Services Inc. in Newport Beach reported sales climbed about 28% this year to $1.4 billion, making it one of the world’s biggest insurance brokers.
Santa Ana-based Allied Universal is a security guard company, but its rapid expansion could also make it a case study in financial engineering. Chief Executive Steve Jones has grown the company from $12 million in annual sales when he joined in 1996 to $7 billion next year, including $1.5 billion from newly acquired U.S. Security Associates.
— Peter J. Brennan
