NEW YORK (AP) — Shares of Wright Express Corp. fell in Wednesday trading following a downgrade from an analyst concerned about the implications new banking regulations could have for the company, which is primarily a payment processor for commercial and government vehicle fleets.
Janney Montgomery Scott analyst Thomas C. McCrohan cut his rating on Wright Express to “Neutral” from “Buy,” following a Treasury Department proposal that calls for companies owning subsidiaries that provide banking services to convert to bank holding companies or forfeit protection from the Federal Deposit Insurance Corp.
Wright Express owns an industrial loan corporation called Wright Express Financial Services Corp.
McCrohan said the way the Treasury proposal is written, Wright Express appears to have three options. It could sell the subsidiary in question, or become a bank and sell its nonfinancial operations, or find a way to establish a new subsidiary for its nonfinancial activities and convert the parent company to a bank holding company.
“All three options have negative implications for long-term earnings power,” the analyst wrote in a note to investors. For example, to become a bank holding company, Wright Express would have to raise $55 million to be considered well capitalized.
The analyst,while noting that the Treasury proposal may never be implemented, said he believes Wright Express “is in the early stages of evaluating its options.” He recommended cutting back on shares, as he sees the regulatory issues as a short term risk.
McCrohan noted that South Portland, Maine-based Wright is one of 29 companies that would be required to covert to a bank holding company under the Treasury proposal.
In heavy late morning trading, Wright Express shares fell $3.34, or 13.1 percent, to $22.10. The stock has traded between $8.21 and $32.46 in the past 52 weeks, and has more than doubled since the start of the year.