Downey Financial Corp. reports $81 million in losses
Shares are down to less than $2 at the parent company of Downey Savings bank amid the mortgage crisis. The Newport Beach-based bank could request government help.
The parent company of Downey Savings reported widening losses today as more borrowers fell behind on their mortgage loans.
Newport Beach-based Downey Financial Corp. reported a third quarter loss of $81.1 million, or $2.89 a share, from $23.4 million a year earlier. Deposits fell by nearly 10%, to $9.6 billion.
The cost of dealing with foreclosed homes contributed to a 64% increase in its operating costs, the company said. Bad loans -- those deemed uncollectable -- rose to nearly $100 million, a tenfold increase.
Downey Financial earnings: An article in Business on Thursday about Downey Financial Corp.'s quarterly results said the company failed to meet the regulatory minimums set for its core capital ratio and risk-based capital ratio. The Newport Beach savings and loan actually exceeded those minimums. It had a core capital ratio of 7.48%, about half a percentage point above the minimum, and a risk-based capital ratio of 14.5%, half a percentage point above the minimum.
As of midday, Downey shares had fallen more than 6%, to less than $2. Shares have fallen more than 90% this year.
The company said it "increased cash-related assets as a cautionary measure." Mass withdrawals at other banks preceded the collapse of Washington Mutual Inc. and Pasadena-based IndyMac Bancorp.
Downey also indicated that it may look to the government for help. The Treasury has said it may buy stakes in regional and community banks as part of its $700-billion bailout for the financial industry.
"We are reviewing the recently announced governmental programs to determine which programs, if any, might be available and appropriate for us," Chief Executive Officer Charles Rinehart said in a press release.
Some finance experts say that Downey is positioning itself to look like a good buyout candidate, citing the thrift's efforts to adjust loans so that struggling borrowers can make payments and avoid foreclosure.
"The way I read it is it looks to me like they are dumping tons of money into trying to fix the problem," said Jim Gray, co-chairman of Beach Business Bank in Manhattan Beach. "It appears the one thing they have done in a very positive way is go out to those people who have been having trouble making their payments and found a way to keep them current."
Downey cut back its staff last week, laying off 200 people in the wholesale loan department, which was responsible for most of the risky loans that are now clogging up its balance sheets. That will save Downey some money on staff costs and, in the short term, allow it to focus on dealing with the loans already on its books.
The bank still has one big prize. It owns most of its 175 branches, giving any new partner or owner access to loyal customers in well-heeled markets in California and Arizona.
Heisel is a Times staff writer.
william.heisel@latimes.com
