International Losses Mount from U.S. Subprime

Fremont General Corp. announced Monday it appointed Stephen H. Gordon as its new chairman and chief executive officer and named David S. DePillo president.

In a regulatory filing Tuesday, NovaStar Financial Inc. said it was unable to submit its third quarter 2007 financial report by the Nov. 9 deadline “due to the magnitude of changes” occurring at the company, including closing of its mortgage origination business and other market factors impacting the valuation of its investment portfolio.

The Kansas City, Missouri-based lender, however, reported today reported a $598 million net loss — more than ten times the $54 million loss in the second quarter.

Moody’s Investors Service announced Block Financial Corp. faces potential downgrades in its senior debt and short-term ratings because of continued poor performance at Option One Mortgage Corp., including losses that have reduced the financial flexibility of parent H&R Block and may compromise the potential sale of the subprime unit to Cerberus Capital Management. The ratings agency additionally noted that governance is becoming a negative rating factor, with the addition of activist board members, subsequent change in auditors, and resignation of H&R’s chief financial officer.

IndyMac Bancorp Inc. received a downgrade in its short-term Issuer Default Rating to F3 from F2 and a negative rating outlook by Fitch Ratings. The ratings agency said the downgrade “reflects the challenging operating environment placing significant pressure on the company’s long-term issuer default rating, and indicated the negative outlook was due to expectancy that challenging market conditions will result in weak operating performance and reduced financial flexibility in 2008 for IndyMac, which is particularly vulnerable in its ratings because it lacks the revenue diversification found in larger banks.

Fitch, however, does not see Bank of America’s credit ratings or rating outlook being impacted by the Charlotte, N.C.-based lender’s disclosure Tuesday that it expects fourth quarter results to reflect a $3 billion pretax charge from a drop in value of collateralized debt obligations, particularly those secured by U.S. subprime residential mortgages. Prior to market-to-market charges BoA has approximately $16 billion in CDO exposure, of which about $12 billion is backed by U.S. subprime mortgage assets. BoA also did a writedown of $300 million in a mezzanine investment in a structured investment vehicle and will provide a total $600 million in support to a cash fund.

BoA’s “strong earnings capacity, balance sheet liquidity and franchise diversification provide it with sufficient flexibility to absorb these valuation charges,” Fitch explained, adding that the lender’s “exposure to CDOs and U.S. subprime mortgage assets after the valuation charges, while moderately high, remains manageable.”

Mizuho Financial Group Inc. said Wednesday its net income for the first half ended Sept. 30 decreased Japanese Yen 65 billion from a year earlier to JPY 327 billion — or roughly U.S. $3 billion — mainly as a result of credit-related costs and an impact of JPY 70 billion due to dislocation in the global financial market stemming from U.S. subprime loan issues, according to the Tokyo-based company’s summary of interim results for 2007. Mizuho estimates its net income for the year will decrease partly because it expects U.S. subprime loan issues to generate additional losses.

Royal Bank of Canada announced Tuesday that it expects to record a $360 million pretax charge, or $160 million after tax, in its capital markets segment in the fourth quarter related to the valuation of subprime collateralized debt obligations and subprime residential mortgage-backed securities. However, the bank expects overall earnings to be “only modestly affected by these items due to largely offsetting impacts,” including a $325 million pretax gain in its Visa Inc. restructuring.

Blackstone posted a third quarter net loss of $113 million, compared to earnings of almost $373 million a year ago, partly due to $803 million in non-cash charges associated with its initial public offering. The company noted concerns over weakness in the U.S. housing market and subprime mortgage market contributed to continued challenging financing conditions. While the “lack of liquidity has had a dampening effect on initiating new, large-sized corporate private equity” and real estate transactions, Blackstone said the current environment also makes pricing of assets more favorable and “marketable alternatives and advisory businesses continue to grow and are not dependent on access to the lending markets.”

Bear Stearns Companies Inc. expects to record a fourth quarter net loss after taking writedowns of $1.2 billion in assets linked to residential mortgages, mortgage securities and CDOs, according to Fitch. The ratings agency quickly downgraded the long-term credit ratings of Bear and its subsidiaries, noting the company’s “financial performance has been negatively impacted by management’s decision to support a sponsored structured credit fund.”

GMAC LLC and its subsidiaries saw long-term issuer default ratings placed on Rating Watch Negative by Fitch, reflecting ongoing pressures at subsidiary Residential Capital LLC. Other GMAC businesses, however, continue to perform well.

HSBC Holding said its U.S. consumer finance business took a loan impairment charge of $3.4 billion in the third quarter, which is about $1.4 billion higher than first half trends would have implied, according to a pre-close trading update announcement today. While higher loan impairment charges were “more than offset” by revenue growth in the group and the end result was better third quarter net operating income than in the prior year, HSBC warned that “there is the probability of further deterioration if the current housing market distress continues and further impacts the broader economy.”

As part of the anticipated Feb. 15, 2008, acquisition of Greater Buffalo Savings Bank, First Niagara Bank will close six Greater Buffalo branches that are within close proximity of First Niagara branches in New York. Additionally, First Niagara will merge three of its own offices into existing Greater Buffalo branches and convert these and 7 others into First Niagara branches, according to an SEC filing.

Commercial mortgage lender Vestin Realty Mortgage II Inc. disclosed it is considering an acquisition of Vestin Realty Mortgage I Inc. A merger of the two companies, which are both managed by Vestin Mortgage Inc., could result in significant cost savings.