With the nation's economy growing again -- at least on paper -- one question locally is whether Madison's largest financial institution can dig itself out of a deep hole.

Anchor BanCorp. Wisconsin has been one of the most battered banking operations in the Midwest. Losses are still mounting, regulators are wary and share prices for the bank, which trades under the symbol ABCW, have fallen below $1, leaving the stock in danger of being delisted by the NASDAQ exchange.

"They are really caught between a rock and a hard place," says Russ Kashian, an economics professor at UW-Whitewater who follows the state banking scene.

After an impressive decade of growth built on a soaring real estate development market, Anchor -- which counts 74 branches statewide and nearly 1,000 employees -- posted a $228.3 million loss for the fiscal year ending March 31 after several large commercial loans went bust.

The problems have continued into the fall, with Anchor last month having to restate its April-June earnings to show a $62.9 million loss -- up $51.1 million from its initial quarterly report. The deepening loss reflected the need to set aside more capital to cover non-performing loans.

Anchor's problem loans have been far-ranging: a luxury condo project in Milwaukee, the Lake Lawn Resort in Delavan, a Castle Rock Lake development in Adams County, and real estate operations in California and Texas through a subsidiary.

In June, the bank voluntarily entered into a cease-and-desist agreement with the Office of Thrift Supervision that required the bank holding company to provide the federal agency with a plan for increasing capital and improving asset quality.

The problem now for Anchor, says Kashian, is being able to raise enough capital to bolster its balance sheet when so many other banks are in the same boat. Milwaukee-based Marshall & Ilsley, for example, last week sold some $800 million in M&I stock to boost its reserves.

"The problem I see is that (Anchor) is like a sports team playing from behind," says Kashian. "If they resist making a risky move, they will ultimately stagnate and get bought out. If they make a risky move and fail, they will be put out of business."

Facing this challenge is new Anchor CEO Chris Bauer. A high-profile executive with the former Firstar Bank in Milwaukee, Bauer, 60, was coaxed out of retirement this summer at the urging of auto dealer friend and Anchor director Dick Bergstrom.

Bauer told the Milwaukee Business Journal recently that he took the Madison job because Anchor has a strong branch network and a well-respected name in Wisconsin banking. "As I looked at it, the problems basically centered in one area - commercial real estate development," said Bauer, who still lives in Milwaukee but stays in Madison during the work week at the Hilton Monona Terrace.

Bauer has since hired Martha Hayes, a former Merrill Lynch executive from Chicago, to serve in the new position of chief risk officer. Anchor also has a new public relations manager in Liz Boelter, who emphasized in an interview last week that the bank is not in danger of being closed by regulators.

Still, the Federal Deposit Insurance Corp. has closed a growing number of struggling banks. On Friday, federal regulators shut down Chicago-based Park National Bank, the third-largest bank in the Chicago. U.S. Bancorp in Minneapolis agreed to assume the deposits and most of the assets of the Chicago bank, among nine closed by the FDIC last week.

These closings boosted the number of failed U.S. banks this year to 115. By comparison, at the height of the savings-and-loan crisis in 1989, the FDIC closed 534 banks, or about 10 a week.

So far, Wisconsin banks have avoided the worst of it. Two weeks ago, the FDIC closed the Bank of Elmwood, the first Wisconsin bank to close during the current economic downturn. The institution's assets were quickly transferred to the Tri City National Bank of Oak Creek, with customers scarcely noticing the change.

Boelter was reluctant to speculate whether ABCW's earnings for the July-September quarter would show any narrowing of the losses. Those figures won't be released until sometime in November. But she says any improvement will be tied to the overall economy improving.

"The struggles that are impacting all banks are largely real-estate-driven," she says. "It's clear that recovery is tied to the larger economy, including the housing market and unemployment."

Boelter also says Anchor isn't concerned about delisting by NASDAQ. While an exchange may drop a stock whose price stays below $1 for 30 consecutive business days, companies can be granted an additional 180-day compliance period.

"As all markets are basically electronic now, if this were to happen to ABCW, the stock price would continue to be available online," she says.

Kurt Bauer, CEO of the Wisconsin Bankers Association, doesn't deny that many banks nationally and in Wisconsin face challenges caused by the deep recession.

"It will take time to work through them," says Bauer, who is unrelated to Chris Bauer. "I think a major positive is that Anchor has been aggressive in confronting their issues as demonstrated by the hiring of Chris Bauer, a well-respected and seasoned banker."

Still, many Anchor shareholders remain upset about the tremendous drop in the share price -- down nearly 97 percent over the last two years.

Anchor in October filed suit against one of its Madison loan officers, claiming the employee and two others manipulated the market for ABCW, reaping major gains for the trio while other investors lost money.

The lawsuit alleges that starting in September 2008, ex-employee Clark Hofer and two others manipulated an employee retirement fund, forcing the administrator to make large purchases and sales of company stock. The trades prompted ABCW shares to rise or fall as much as 88 percent in a three-day period, the lawsuit claims.

How much that alleged scheme did or didn't play into the stock's poor performance remains unclear. In either case, Anchor continues to take a beating on the electronic message boards used these days by investors looking to vent without leaving a name.

"When a horse is injured, it is mercifully shot and put out of its misery," wrote a 67-year-old Madison shareholder on Yahoo Finance last week. "Time for the Feds to pull the trigger on this poor wretched animal."

UW Whitewater's Kashian won't go that far but admits Anchor is facing some major headwinds. "While it is possible to make money and rebuild capital, they are behind other players in this process," he says.

Add or View Comment

Login to post your comment. If you don't have an account, you may register for one.