Jul 24, 2008 11:21 am US/Pacific
Is Downey Savings Carring Risky Mortgage Loans?
NEWPORT BEACH, Calif. (CBS) ―
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Downey Savings and Loan has been carrying the same kinds of risky mortgage loans as did Countrywide Financial Corp. and IndyMac Bank.
Downey Financial Corp., the parent company of Downey Savings and Loan, today reported a net second-quarter loss of $218.9 million, or $7.86 per share on a diluted basis, and announced a shakeup on its board of directors.
Like many financial institutions, Downey Savings and Loan has been
carrying the same kinds of risky mortgage loans that helped trigger huge losses at Countrywide Financial Corp. of Calabasas, which was recently acquired by Bank of America, and IndyMac Bank of Pasadena, which has just been taken over by federal banking authorities.
Investors are selling their stock, sending shares of Downey Financial down 91 percent this year, although the stock rose 21 cents Wednesday to $2.73.
The value of so-called non-performing assets, mainly unpaid loans, has
grown to more than 14 percent of Downey's assets, up from less than 2 percent a year ago, the Los Angeles Times reported.
Most banks generally have fewer than 1 percent of their assets tied in bad loans, according to the newspaper.
However, unlike Countrywide and IndyMac, which relied on housing loans
for most of their business, Downey Savings reports $10 billion in deposits and, according to the Los Angeles Times, owns most of its 84 stand-alone branches.
The company reported deposits totaling $9.881 billion at the end of the
second quarter, down $1.366 billion, or 12.1 percent, from a year ago.
"Downey probably will have to make some cuts and close some branches, but it still has a lot of customers," Arthur Kraft, the dean of Chapman University's business school in Orange, told The Times."That could be what makes the difference."
(© 2008 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Wire services contributed to this report.)
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