New Century's woes deepened on Monday after the stricken subprime mortgage firm said its lenders are cutting off credit.
The NYESE delayed the opening of trading in New Century shares 9:30 a.m. Eastern, pending a news announcement, according to market sources.
The stock had dropped 56% to $1.42 in pre-market trades on the mortgage lender's latest credit woes.
The firm said in a filing with the Securities and Exchange Commission Monday that lenders under its short-term repurchase agreements and aggregation credit facilities had either discontinued their financing or notified the company they plan to do so.
Bloomberg added this:
New Century Financial Corp., the nation's second-biggest subprime lender, said today it doesn't have the cash to pay creditors who are demanding their money now, increasing speculation that the company will go bankrupt.
Shares of the Irvine, California-based company, already down 90 percent in 2007, lost half their remaining value in pre-market trading. New Century said in a federal filing it doesn't have funds to give to lenders including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. The creditors want New Century to repurchase all outstanding mortgage loans they financed.
``They're one step closer to bankruptcy,'' said Bose George, an analyst at Keefe Bruyette & Woods in New York who rates the shares ``market perform.'' ``The only possibility for survival now is for someone, potentially an investment bank, to step in.'' Bose said a rescuer might provide more money in return for a large equity stake.
This is not a Mom and Pop storefront. It's the second largest subprime lender in the country. That should indicate the degree of problems the industry is facing right now.
3 comments:
Imo the issue re NEW is whether a reorg is feasible or should they just go ahead and liquidate.
The NYSE is probably not going to let it trade until they fess up. In the 8k this morning they should have issued the traditional warning that future events could render the common worthless.
They need to announce their intentions.
Bonddad:
Can't tell you how much I enjoy your blog. I first began reading you at Daily Kos.
I have some really, really basic questions - hope you won't be offended.
First, what does this news mean for the New Century borrowers who are: a) able to pay their mortgages; or b) not able to pay their mortgages.
Secondly, is there any silver lining to New Century's problem?
Does the possibility exist that this opens up an opportunity for individuals, affordable housing advocates, or other housing-related organizations to acquire housing at a significant discount?
Thanks.
I can't see any silver lining in people losing their homes, even to affordable housing advocates.
Housing prices move at a much slower pace than other more liquid markets. So I wouldn't expect a sudden drop in home prices anytime soon.
What I think will happen is that over the next year or two, house prices in economically strong markets will flatten (as they already have begun to) and remain flat for the foreseeable future.
In Southern California, the economy is so diversified and generating so many jobs that it's difficult to see house prices collapsing here. The last time house prices slid in Southern California was during a major economic downturn in the area in the early 90s.
That is happening right now. There will continue to be an increase in inventory and houses will stay on the market a bit longer, but ultimately there will be buyers for these homes.
In other parts of the country that have weaker economies, however, the subprime disaster will have a more direct and immediate impact on prices.
I wouldn't hold out much hope for finding lots of bargains all of a sudden... unless you're looking in an area which is having economic problems to begin with.
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