November 3, 2017
By Bob Coleman
Editor, Fraud Friday
Fraud Friday — Newtek Forecasts Zero Earnings from banc-serv
Says Newtek President & CEO Barry Sloane in yesterday’s 3Q earnings call.
Barry again confirmed banc-serv was the target of the FBI raid that seized company records.
New information to the story is Newtek’s earnings forecast has zeroed out any contribution from banc-serv for future income and dividends –“basically include zero to de minimis contribution from banc-serv.”
Newtek’s stock continues to get hammered. It priced at 17.99 on the day news broke of the raid on October 12. Yesterday it closed down 2.6% to 16.74 — a 7% decrease over three weeks. (Although to be fair the stock has recovered a bit since the one-day 10% drop on Friday, October 13th.)
Here is the transcript of the earnings call concerning banc-serve:
On June 24, 2016, we completed an investment in banc-serv Partners, LLC. banc-serv Partners was company we bought a little bit over four times cash flow. We have owned that business for approximately 15 months.
As we have recently reported in a press release on October — actually, I think the press release was on — no, press release on October 13th, the Company announced that its portfolio company, ADAR Partners LLC dba banc-serv Partners was served with a search warrant from the FBI on October 12th.
The FBI entered banc-serv’s offices in Westfield, Indiana.
They did a search; they took company records; before the end of the day, they left and banc-serv was open for business and continues to be open for business.
banc-serv recently was one of the primary sponsors at the NAGGL Conference, National Association of Government Guaranteed Lenders. I went to the conference, spoke to many clients of banc-serv, it is business as usual in banc-serv.
Newtek invested $5.4 million in banc-serv that is approximately 1% of its total assets, which are excess of $500 million. It is approximately 2% of NAV.
What I would like to state to people on this call is that there is currently an FBI investigation in the marketplace and it is in its early stages. And it wouldn’t be appropriate for us to make any further comments at this point in time.
The comments that we have made to-date reflect what Newtek believes is material to its financial statements and ongoing business. I will state that the current forecast that we have had for dividends and adjusted NII, basically include zero to de minimis contribution from banc-serv Partners, which we have the ability to upstream income and dividends as the board of banc-serv sees fit.
I’ll also point out once again, banc-serv is a controlled portfolio company, it is an investment, and we have made all the statements that we’re going to make with respect to banc-serv.