Thursday, November 15, 2007

Downey Financial NPAs Continue Exponential Trend; StanPac Bonds Down

Downey Financial NPAs
Today Downey released another Thirteen Month Selected Financial Data report. The rate of increase of their non-performing assets increases every time it is reported:

Downey reports NPAs as a percentage of total assets. But not all of a bank's assets are loans. So, to make the NPA statistic more easily comparable, you can back out Downey's cash, investment securities, FHLB stock, and other assets that are not loans from the calculation.

The graph above shows NPAs as a percentage of only loans. It reveals that calculating NPAs as a percentage of total assets has been steadily understating the increase.

I have consistently maintained a "Sell" on Downey since March 15 when it was selling for $64.87. It is down 51% since then.

Take a look at this writeup from April 2007 on Downey's underwriting quality.

I have a prediction: Downey NPAs will be sharply higher in their next data release. You can confirm that using the first chart in this post.

Standard Pacific Troubles
Today we had four people come to Credit Bubble Stocks searching for "Standard Pacific bankruptcy," which has to be some kind of record. Ouch!

The StanPac subordinated note is now yielding over 35%. Take a look at the price action:

I continue be short DSL and SPF.


Anonymous said...

Great graph, good catch! DSL is probably the surest short bet right now. I FirstFed is at least somewhat better managed and most of the others have already been pretty toasted.

Anonymous said...

Well Bob_in_ma, you certainly jinxed us with that bit about "surest short bet." Nothing is ever sure. Please show some humility before the Fates. :-)

The question in my mind: is Ford trying to actually by this at 30-40/sh or is he trying to position himself as first in line when the FDIC comes calling?

At first I was thinking he actually was going to pay the current tick, now I'm wondering if he's merely figuring this is a down payment to stake his claim and the rest he'll get much lower once Downey is nominally insolvant. After all, he did walk away from Fremont because he wouldn't pay-up, so maybe he is price sensitive after all. But why buy 6.8% of an S&L with NPA's blasting off like a rocket? Until the filing hit the wires, he as seriously underwater.

Thoughts anyone?

Anonymous said...

DSL is up 40% ever since the post. I still think you are right on this one about shorting.. doesn't seem to have a future..
Is it a good time to get in shorting this baby.. or with interest rate cut talk, is it going to go up giving a much better opportunity to short ?

Any thoughts guys !!!