Friday, December 14, 2007

Downey Financial (DSL) Non-performing Loans Jump Sharply

Last month, I predicted that Downey Financial (DSL) Non-performing assets (NPA) would be sharply higher in their next data release.

Today Downey released another Thirteen Month Selected Financial Data report, and the jump in NPAs surprised even me.

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 52% since then. Take a look at this writeup from April 2007 on Downey's underwriting quality.


Anonymous said...

Thanks for the valuable charts and graphs. The moment of truth is almost at hand. We will acquire distressed mortgage debt in the early part of 2008 and would like to talk to others who share our contrarian investment perspective

Anonymous said...

How is DSL cashflow? Can they possibly survive?