Amcore Financial ordered to raise capital: Failure to comply could lead to sale, liquidation or merger

Federal banking regulators have ordered Amcore Financial, the holding company for Amcore Bank, to boost its capital and to devise and adhere to a risk-management plan.

Amcore agreed Thursday to both the consent order with the Office of the Comptroller of the Currency and to the written agreement with the Federal Reserve Bank of Chicago.

If Amcore doesn’t meet the terms of the order, the holding company will be sold, liquidated, or merged with another institution, according to the document.

The holding company has until Sept. 30 to raise its capital back to acceptable levels and 60 days to develop the risk-management plan.

The plan needs to assess, on an ongoing basis, the company’s “current and projected funding needs, and ensure ... that sufficient funds exist to meet those needs,” according to the regulator’s order.

The company is required to submit cash flow projections for the remainder of 2009 and written progress reports at the end of each fiscal quarter.

Fitch, a global ratings agency that monitors financial institutions, doubts that Amcore will be able to meet those terms, and subsequently downgraded the company’s credit rating upon news of the agreement with regulators.

The pact further restricts Amcore from paying dividends or any other payments that would reduce Amcore’s capital, without approval from the regulators. The company also cannot pay interest or principal on subordinated debt or trust-preferred securities without prior approval.

Those restrictions put Amcore in technical default on a $20 million revolving credit agreement with J.P. Morgan Chase. It is not a monetary default on the agreement, and J.P. Morgan has advised Amcore that it does not expect to pursue any remedies at this time, said Katherine Taylor, an Amcore spokeswoman.

The J.P. Morgan loan is with the company’s parent company, Amcore Financial, and not with Amcore Bank, “so it has no direct impact on the bank or our customers,” Taylor said. “FDIC insurance is still in place up to the highest amount,” she said.

“Amcore management will continue to actively and aggressively pursue all capital-raising activities available in today’s marketplace,” Taylor said. “We expect significantly lower second-quarter losses ... because we’re seeing improvements in the economy.”