New Jersey-based bank Commerce Bancorp announced yesterday that federal regulators are investigating transactions involving some of its principals. The bank also warned that a difficult interest-rate environment might cause early 2007 earnings to miss Street forecasts. The double whammy precipitated an 8.3% share price drop to $31.83. In 2005, two Commerce officers were convicted of municipal corruption involving Philadelphia city contracts. There is speculation that the current probe concerns two things: leases the bank holds for land with entities in which CEO Vernon Hill is a business partner, and a longstanding business relationship the bank has had with an architectural design firm run by Hill's wife. The bank reported that it met analyst forecasts with a 68% increase in Q4 profit to $78.7 million, or $0.40/share, but expects quarterly earnings to stay around $0.40/share until the Fed cuts short-term interest rates. Analysts had forecast profit per share of $1.84 for the year, a target that now appears virtually impossible to achieve. Net interest margin also fell to 3.25% in Q4 from 3.27% in Q3 and should average between 3.2% and 3.3% through June.
• Sources: Bloomberg, Motley Fool, Reuters. Conference call transcript: Q4 2006
• Related commentary: Why a Commerce Bancorp Sale is Unlikely
• Potentially impacted stocks and ETFs: Commerce Bancorp Inc. (CBH). Competitors: Citigroup Inc. (NYSE:C), PNC Financial Services Group Inc. (NYSE:PNC), Wachovia Corp. (NASDAQ:WB)
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