Reeling from mortgage loan losses, Downey Financial Corp. warned last week that its choices were stark: Raise capital or risk a government takeover.
It's still waiting for that capital. And since today is Friday, the day when bank takeovers generally occur, industry observers will be watching again to see whether Downey turns the keys to its executive suite over to the Federal Deposit Insurance Corp.
"My little circle of banking friends has talked about it each Friday for the past few weeks: Is this the day that Downey gets taken over?" said Joe Garrett, a Berkeley banking and mortgage consultant with 30 years in the business, half of them operating federally insured banks.
Downey executives didn't respond to requests for comment.
The Newport Beach-based bank has said in the past that it is trying to comply with orders from the federal Office of Thrift Supervision to reduce soured loans, dispose of foreclosed properties, strengthen management and provide an updated business plan that no longer relies on revenue from risky mortgage loans.
In its Nov. 10 filing with the Securities and Exchange Commission, however, Downey Financial said there was "substantial doubt" that it and subsidiary Downey Savings could "continue as going concerns."
In the event of a government takeover, individual depositors are insured by the FDIC for up to $250,000.
As part of its $700-billion bailout of financial companies, the government has been buying stakes in healthy banks, hoping the fresh capital will allow them to resume lending and stimulate the economy. But industry experts say there is little hope Downey is strong enough to win a federal investment, and the savings and loan has said there is "no assurance" it could tap federal funds.
Investors appear to be betting that the bank won't survive. The shares have lost 99% of their value this year, falling 2 cents Thursday to 19 cents. A year ago, they traded over $40.
With most economists saying the nation is in recession, Downey is far from the only lender in the region to be beaten up on Wall Street.
The Inland Empire's PFF Bancorp, Vineyard National Bancorp and Temecula Valley Bancorp, for example, have seen their stocks punished especially hard by investors worried that their heavy emphasis on home construction loans will make it impossible to raise new capital or sell themselves.
