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Downey Done With Brokers

Wholesale division closed, retail operations cut back

Oct. 16, 2008

By staff

Struggling Downey Savings and Loan Association has shut down its wholesale operations and is scaling back its retail operations. Hundreds of employees are impacted.

An announcement today from parent Downey Financial Corp. said it will close its wholesale loan department and loan processing centers immediately. In addition, Downey will reduce the size of its retail lending division.

The Newport Beach, Calif.-based company cited changing industry dynamics.

About 200 employees are impacted by the move.

"We have determined that a wholesale lending channel is no longer a necessary component of the plan," Chief Executive Officer Charles R. Rinehart explained in the statement. "We are scaling back our retail loan department to better reflect the industry-wide contraction in retail lending."

Rinehart, who just joined Downey last month, added that the move reflects constrained capital requirements on the company as well as a shrinking pool of qualified borrowers. The bank is operating under a cease-and-desist order from the Office of Thrift Supervision due to inadequate capital. It suffered a brief run on deposits in August.

Downey reported in July that second-quarter delinquency soared more than five-fold from a year earlier to 11.21 percent at the end of June, while non-performing assets increased more than 10-fold from a year earlier.

Downey has suffered nearly $0.5 billion in losses during the first half of this year.

"The Downey Savings board and management team have been evaluating, and will continue to evaluate, our long-term business plan in light of the challenges facing the company, the banking sector and the entire economy," Rinehart stated.

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