BCSB chief executive resigns

Move comes after bank lost $6.9 million in an alleged check-kiting scheme

July 25, 2006|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

The chief executive of Baltimore County Savings Bank has resigned, less than a month after the community financial institution revealed $6.9 million in losses from an alleged check-kiting scheme by one of its commercial customers.

Gary C. Loraditch informed the board of his resignation effective yesterday, according to a news release issued by the bank's parent, BCSB Bankcorp Inc., after stock markets closed. David M. Meadows, the bank's general counsel, will act as interim chief executive while the board searches for Loraditch's replacement, according to the release.

Loraditch, who had been with the bank for more than 30 years, did not return a telephone call to his home, and Meadows declined to comment beyond the release. Meadows, a former prosecutor, has been investigating how the bank was duped in the kiting scheme.

Board Chairman Henry V. Kahl thanked Loraditch "for his dedication and service to the company," the release said. Kahl also noted that the bank faces some "short-term challenges," but that "the bank's core business is strong and prospects are bright overall."

The check-kiting scheme - which has rattled Baltimore's financial community - cost Baltimore County Savings the equivalent of seven years' worth of profits. Carrollton Bancorp, another Baltimore-area community bank, and Global Express Money Orders Inc. of Silver Spring have said they lost a combined $3 million in the scheme.

The losses capped a string of bad news for Baltimore County Savings. In December, the bank was placed under supervision of federal regulators, and it has lost money in two of the past four quarters as higher interest rates squeezed its margins.

The bank's stock, which is thinly traded on the Nasdaq stock market, has fallen more than 5 percent since the bank announced it had been victimized by kiting. It closed at $11.50 yesterday.

Check kiting, a kind of shell game that takes advantage of the time delay before a check is cleared, has become "a time- honored method of fraud" at banks, said Jim Eckenrode, managing director of banking and payments at Tower Group, a financial services advisory firm. He said banks often must reassure customers that the bank is sound and sometimes reshuffle managerial ranks after such a fraud.

"Banks generally take a look at the technology and processes that guard against fraud, and oftentimes people in leadership positions who made those decisions may be part of the review," Eckenrode said. "There may be some shake-up in management as a result, depending on how big the loss was."

Loraditch's career at the bank began shortly after he graduated from the University of Baltimore with an accounting degree. He held a number of jobs, including chief financial officer, before ascending to the CEO post in 1999. He also earned a law degree from his collegiate alma mater.

The bank, founded in 1955, became a publicly traded mutual holding company in 1998. Loraditch helped oversee the bank's expansion, particularly the acquisition of Heritage Savings Bank, a Lutherville thrift with more than $160 million in assets and five offices, in an $18 million transaction in 2002. The bank recently opened three more offices, including one in Owings Mills.

At the same time, the bank has been striving to trim costs by cutting employee benefits and eliminating positions, according to filings with the Securities and Exchange Commission. Last year, the bank shut down automobile-lending operations.

In the six months through March, the bank posted a loss of $5,000. To reduce interest-rate risk, the bank's lending strategy has shifted to focus on residential, commercial and short-term home equity loans.

Also, to appease regulators at the Office of Thrift Supervision, the bank has been adopting new policies and procedures to shore up its internal controls and its processes for identifying customers at high risk of unlawful activity. Meadows has said the problems identified by regulators are unrelated to the check-kiting scheme.

In court papers and public statements, Baltimore County Savings, Carrollton Bank and Global Express Money Orders have named A&B Check Cashing as the perpetrator. A&B has shut down its string of 20 stores around Baltimore, and its parent company, Colleen Inc., filed for bankruptcy court protection.

The scheme started to unravel, according to banking officials and state regulators, after Colleen co-owner Alec Satisky committed suicide at the company's headquarters last month.

Baltimore County Savings secured a lien against the personal assets of Brian Satisky, Alec's brother and co-owner of Colleen, in Baltimore County Circuit Court. Brian Satisky has declined to discuss the case.

Meanwhile, the FBI is investigating the allegations of check kiting, but no charges have been filed.

laura.smitherman@baltsun.com

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