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Executive and Earnings Shakeups

Executive and Earnings ShakeupsRecent earnings and corporate activity

February 20, 2008

By SAM GARCIA

U.S. mortgages continued to destroy corporate earnings domestically and abroad. The latest turmoil has left one firm facing a class action lawsuit and cost one chief executive his job.

KeyCorp. warned in a Securities and Exchange Commission filing Tuesday that if market conditions don’t change by Mar. 31, it will likely take a $65 million after-tax first quarter charge on its commercial real estate mortgage loans held for sale.

The Cleveland-based company explained that it currently has $545 million in commercial mortgages that would normally have been securitized or sold. Some of the loans are not hedged, and market conditions have been volatile — with little liquidity for commercial mortgage-backed securities through Feb. 13.

Flagstar Bancorp Inc. said Tuesday it would suspend its first quarter dividend.

“Although we are seeing strong loan production, increasing gain-on-sale margins and improved net interest margins, the board believes that it is prudent to preserve capital by suspending the dividend until the capital markets normalize and residential real estate shows signs of improvement,” Chief Executive Officer Mark Hammond said in the statement. “The board will reassess the dividend in the second quarter based upon first quarter results and the state of the capital and residential real estate markets.”

Radian Group Inc. reported a net fourth quarter loss of $0.6 billion, compared to an $0.2 billion profit a year earlier. Radian said it had a full-year loss of $1.2 billion in 2007, worse than the $0.6 billion profit for 2006. Mortgage insurance losses incurred were $0.6 billion, while there was an $0.5 billion change in fair value of derivatives.

MBIA Inc., a struggling bond insurer, ousted its chairman and CEO Gary Dunton, according to a press release.

Incoming Chairman and CEO Joseph ‘Jay’ Brown previously served as CEO of the Armonk, N.Y.-based bond insurer. He called the need to expedite communications with the New York State Insurance Department “critical”

“The rapid deterioration in the U.S. residential real estate market, combined with a near total collapse in global liquidity for structured financial products, have presented MBIA with the most serious challenges in its 34-year history,” Brown said. “MBIA is looking at a wide variety of different approaches, working with our primary insurance regulators, the rating agencies and other financial market regulators, to guarantee that this industry and particularly MBIA, can play a vital yet manageable role in the capital markets.

Wolf Popper LLP announced it has filed a class action lawsuit against Centerline Holding Co. in the U.S. District Court for the Southern District of New York, on behalf of shareholders who purchased common stock on the open market from March 12, 2007, through Dec. 28, 2007. Centerline is accused of failing to notify investors it was working on the sale of a $2.8 billion tax-exempt affordable housing bond portfolio to Freddie Mac.

The move left the company with an altered business model, a $95 million charge and $140 million in contingent obligations, Wolf Popper said. A cut in the annual dividend from $1.68 per share to only $0.60 per share, along with the other news, helped push shares of the company down about 25 percent on one day.

NovaStar Financial Inc., operating with just 30 employees as of last month, obtained another waiver for its minimum net worth requirement on a credit line with Wachovia Bank N.A. The waiver allows for liquidity of $17 million, down from $30 million in the original agreement.

SunTrust Banks Inc. announced its board of directors elected current President and CEO James M. Wells III to the additional role of chairman. Wells replaces retiring chairman L. Phillip Humann — a 40-year veteran who will continue as a consultant for one year from his planned retirement in April 2009.

Bank of Montreal parent BMO Financial Group warned it would take a $490 million charge for the quarter ending Jan. 31. The Canadian concern said $160 million in charges are tied to hedges with ACA Financial Guaranty Corp., a monoline insurer, while $175 million are in trading and structured credit-related positions, preferred shares, third party Canadian conduits and other mark to market losses. BMO also took a $130 million hit to its investment in a structured finance vehicle and a $25 million charge related to notes held in two structured investment vehicles.

Credit Suisse said Tuesday repricing of asset-backed investments will lead to a first quarter charge of $2.9 billion. The move was the result of an internal review and reflected significant adverse first quarter 2008 market developments.

“Our internal review, which has identified mismarkings and pricing errors by a small number of traders in certain positions in our structured credit trading business, is continuing,” the Zurich-based bank stated.

Singapore-based DBS Group Holdings reported last week a (U.S.) $120.4 million charge on CDOs with U.S. subprime exposure. Another $21.3 million in general allowances was taken “as a prudential measure.”

The British government has taken over Northern Rock, a struggling mortgage lender. The Associated Press reports the move marks the first nationalization of a private sector company in 20 years.


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