Reeling from a growing pile of delinquent mortgages, Downey Financial Corp. on Thursday reshuffled its top management and signaled that it would seek to sell the company. But analysts said it would have trouble finding a buyer.
Highlighting the gravity of Downey's circumstances, Maurice L. McAlister, the company's chairman and co-founder, gave up his position after running the thrift company for a half-century. Also leaving the Newport Beach-based operator of Downey Savings & Loan was Chief Executive Daniel D. Rosenthal, McAlister's former son-in-law.
The management changes, which people familiar with the situation said were initiated by Downey's board, indicate a desperation to raise new capital or sell the company, analysts said.
"I do think they are going to try to sell this thing, but I don't think they can sell it because of the lack of insight anyone has into how deep and severe this housing market is going to be, especially in the geographic locations Downey is in," said Paul Miller, an analyst with FBR Capital Markets.
Downey's more than 170 branches are concentrated in Los Angeles, Orange, Riverside and San Bernardino counties -- areas that, like much of California, have been hard hit by falling home prices.
Long known as a conservative lender, Downey veered off its course in recent years by making many "option ARM" loans, which are risky adjustable-rate mortgages that allow borrowers to initially pay less than the interest that accrued each month. With home prices sinking, such loans are seeing high default rates.
On Thursday, the company said it held $1.9 billion in bad loans on June 30, or 15.5% of its total assets, about double the figure six months earlier.
The company also reported a second-quarter loss of $218.9 million, or $7.86 a share, its fourth straight quarterly deficit. Analysts had predicted a loss of about $130 million. The company posted a profit of $32.7 million in last year's second quarter.
Downey also said it was exploring "strategic alternatives," a term typically used by a company seeking to sell all or part of itself.
The news Thursday sent Downey's stock plunging 93 cents, or 34%, to $1.83. The decline suggests that the stock market doubts the company can find a buyer at a decent price. The shares are down 94% this year.
Downey initially declined to comment on the management changes but late in the day supplied a statement saying they were "designed to keep the bank on firm and solid footing."
