Current news for this company:
Downey Savings and Loan - Agency, Alt-A, Subprime
Update - 2008-09-07: MarketWatch reported the Office of Thrift Supervision (OTS) filed Cease and Desist Orders (C&D's) against Downey Savings & Loan, F.A. (Order Number: WE 08-12) and holding company Downey Financial Corp. (Order Number: WE 08-13) on Friday, September 5th.
"Nothing to see here folks," was the sentiment of Downey officials echoed in news accounts. In their press release, Downey's Board Chairman Michael Bozarth waived the C&D's off as mere formality:
"We have been working closely with our regulators to aggressively address the challenges Downey has been facing in this unprecedented financial environment and are pleased to have reached agreement on a formal plan that addresses the OTS' concerns," said Michael Bozarth, Downey's Chairman of the Board. "The Orders reflect a number of measures that Downey has already undertaken and, in some cases, is close to completing. Having reached agreement on these Orders, and having successfully raised a significant amount of new capital, Downey has made substantial progress."
Although Downey touts this as addressing "concerns," the OTS does not act unless action is necessary, and regardless of pleadings of "substantial progress" this merely suggests Downey's inability to completely and immediately comply with their marching orders. The OTS has not been known to deal in "mere formalities."
The Orange County Register reported that "Thomas Prince, interim Chief Executive Officer of Downey, downplayed the regulatory actions today, saying his company has been working with regulators and taking needed steps." -- no doubt, after soft-peddling it in their last quarterly report. An article in LA Times reported:
Downey Savings & Loan Association is subject to the following conditions under the Cease & Desist Order as reported in their 8-K filing:
NOTE: DSL's ratios as of June 30, 2008 for core capital and total risk-based capital were 7.57% and 13.23% respectively.
The origination of Stated-Income loans and Pay Option ARMs had previously been eliminated, and Downey has raised $109 million in capital through the sale of certain assets so far in its efforts to cooperate with regulators.
Update - 2008-08-13: Downey's shares held today, closing at $1.72 after Market Watch reported yesterday's drop of 18% from a Monday close at $2.10. Bloomberg reported "depositor withdrawals were 'elevated'." The article ends with this correlative statement:
"IndyMac Bancorp Inc. was seized by U.S. regulators last month following a run by depositors."
It's not a novel idea that there exists some coincidence, given the similarities pointed out by blogger Anthony Freed in his article "Downey Under New Restrictions."
"It certainly seems that the Feds are putting regulatory pressure on Downey where they were not inclined to intervene at Indymac, even when Indymac's liquidity situation was much more grim than Downey's is currently. Are we seeing a new and tougher Federal Regulatory presence beginning to emerge? Me thinks I hear the rumblings of a long sleeping giant."
To read the entire commentary, visit the forum thread on Downey Financial here.
Update - 2008-08-11: After seeing this section from Downey Savings and Loan's 10-Q filing today for the second quarter of 2008, we have to wonder if they are operating under an OTS "Memorandum of Understanding":
"In light of the current operating environment and Downey's recent quarterly losses, the Holding Company and the Bank have been working closely with the Bank's federal banking regulators. In that regard, the OTS, the Bank's principal regulator, has also imposed the following limitations on the Bank: the Bank may not pay dividends to the Holding Company without prior OTS approval; the Bank may not increase its assets during any quarter in excess of an amount equal to net interest credited on deposit liabilities without prior OTS approval; the Bank must provide prior notice to the OTS regarding any additions or changes to directors or senior executive officers (or changes in the responsibilities of senior executive officers); the Bank may not pay certain kinds of severance and other forms of compensation without regulatory approval; the Bank may not enter into, renew, extend or revise any contract related to compensation or benefits with any director or senior executive officer without prior regulatory approval; and the Bank must provide prior notice to the OTS (and not receive any objection) before engaging in transactions with any affiliate or subsidiary. In addition, the Bank is subject to higher regulatory assessments and FDIC deposit insurance premiums than those prevailing in prior periods."
Update - 2008-07-14: Since our last update, shares in Downey Savings & Loan (DSL) have fallen to a new low, closing today at $1.28 per share.
An article today on CNBC points to more dire circumstances:
Bove's analysis, according to that article, looks at two ratios, both of which do not paint a pretty picture for Downey Financial Corp., the parent holding company for Downey Savings & Loan. First of those looks at non-performing assets to total assets. MarketWatch reports:
"Downey Financial said Sunday that its nonperforming assets hit 14.33% of its total assets in May, up from 10.75% at the end of February. A year ago, Downey's nonperforming assets were 1.3%."
Bove's second ratio divides non-performing assets by reserves plus common equity. "A ratio about 40 percent is the danger zone." We do not have direct access to the report, but Downey's on that "danger" list too, according to the same article.
Said one poster on the Yahoo!Finance message board for DSL... "DSL meet IMB."
Update - 2008-06-13: In their press release of "Thirteen Month Selected Financial Data" today, Downey Financial Corp. reports total non-performing assets (NPA's) have hit a new high of 14.3%. The percentage has been steadily increasing every month, most sharply since November of 2007 when it began jumping up by as much 2% each month.
The Orange County Business Journal said "Concerns about mortgages at Downey have driven down the company's shares some 90% in the past year." Reuters noted NPA's amounted to "one seventh" of Downey's total assets, a "nine-fold rise in bad loans for May from a year ago." Assets were reported at $12.78 billion, also down from $15 billion in May of 2007.
Original Listing - 2008-05-31: We've been watching Downey Savings and Loan slide downhill for some time now. In recent news, a rash of shareholder class action suits have been filed against parent holding company Downey Financial Corporation:
We anticipate most these will be consolidated. You can view the original complaint (by Coughlin et al) here.
Yet another class action was filed on 2008-05-28 - this on behalf of loan officers employed by subsidiary Downey Savings and Loan Association, F.A. based in Newport Beach, CA for alleged labor law violations. As if that weren't enough, there was also a civil action alleging violations of TILA and RESPA filed the same date.
It's only the latest installment in Downey's pain. Comments have been coming in:
"Wholesale closed most of their Ops Centers at the first of the year. All the AE's in Sacramento quit months ago...They have stopped updating their web site the stock has plummeted etc. Seems like Wholesale is going to have to be shut if the bank is to survive."
"With their concentration in So California and their exposure to tons of adjustable rate mortgages, I know they are in trouble... "
"Downey Financial just laid off their wholesale branch in AZ..."
Brokers we've spoken to say wholesale has been discontinued but this may not be accurate. We also saw this:
As of this writing, their stock is down below $7 a share from its 52-wk high of $74.11. Ninety percent? Yes, that spells trouble. We'll continue watching...closely.
Anthony M. Freed at 19:11 2008-09-07 said:Trust me, Downey will be bought by someone who can sit on the debt for a while before the feds close them down (notice the stock jump). Everyone and their uncle knows that SoCal will have outragious housing prices again the next time the economy is good. it's only happened repeatedly. The area grows like crazy - be it from south of the border countries to everyone else in the world that has seen an american TV show or movie. They all want California. Sothern California. LA - OC - the Valley. Downey is small enough and concentrated in prime bubble territory. It is a safer bet than throwing money at companies like Lehman Brothers or Merrill Lynch who can just swallow billions with even flinching. Downey with something like a $56 MM market cap - pick it all up that for a few hundred million and own something like half of all the foreclosed properties in Orange County. Nice payoff in a few years. Permalink
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Important: This company is on our list of lending operations that are apparently ailing or which we think are worth watching for any other reason. We make no representation or claim that any company on this list will or will not continue as a going concern, or change in any other way, adverse or beneficial. If you have concerns about this company, we suggest contacting them directly and/or checking with other reliable sources.