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Those were the two locally-HQ’ed banks considered vulnerable by Ladenburg Thalmann analyst Richard Bove - based on an analysis of non-performing assets and seriously delinquent loans. Downey Financial, based in Newport Beach, ranked No. 1 on Bove's list of suspect institutions. As you might imagine, the stocks of both Downey and FirstFed Financial took a beating (short sellers didn't help matters), despite the companies trying to reassure depositors and shareholders that they were in okay shape. Those assurances, along with the overall rebound of bank stocks, apparently did some good today. Downey topped the list of biggest percentage gainers on the NYSE, jumping 74.8 percent, to $3.88, while FirstFed closed up 35.8 percent, to $7.25 (though it's taking a big hit in after-hours trading). Tom Petruno at Money & Co. notes that short-selling might have played a role in the runup as well. "The problem for short sellers is that, once a heavily shorted stock begins to rebound, the turn can trigger a rush to close out those bearish bets," he posts. "As shorts jump in to buy, they become each other’s worst enemies, driving prices higher."
Meanwhile, Bove is getting some flack for naming names. Remember it was NY Sen. Charles Schumer who hastened the demise of IndyMac several weeks back by openly questioning the mortgage company's viability. (I mentioned Bove’s list and Downey Financial’s plummeting stock price on Patt Morrison’s show Monday afternoon.) The irony is that Bove used his findings to point out that the banking industry was in much better shape than during the savings and loan crisis (he has written two clarifying notes this week). “The flaw in what he’s done is that he’s assuming all non-performing portfolios are the same,” Ramiro Ortiz, COO of BankUnited, one of the banks on the list, told Financial Week.
“The data is not inaccurate,” noted FirstFed Financial CFO Doug Goddard. “We’re being highlighted because of our non-performing assets right now.” But he said FirstFed Financial exited the single-family home mortgage business in 2007. “We stopped adding to the most at-risk portfolio two-and-a-half years ago.” “We don’t envision a situation where we will need to raise capital, let alone dip below well-capitalized [status] in the next year,” Mr. Goddard said.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.