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Earnings, Assets & Operations

Earnings, Assets & Operations

Recent mergers, acquisitions and other corporate activity

September 28, 2007



photo of Coco Salazar
Mortgage assets continue to change hands as a major industry shakeout continues. But legal maneuvers — and not successful company acquisitions — are mostly responsible for the shift. Meanwhile, executives and regulators continue to grapple with falling earnings, troubled assets and waning operations.

Second quarter earnings for banks and thrifts decreased more than 2 percent annually to $37 billion primarily due to loan loss provisions — which increased 77 percent year-over-year to $11.3 billion, Ratings announced. Out of the 8,698 banks and thrifts analyzed in the quarterly review, BLC Bank had the largest annual decline in net income — down 1,983% to a net loss of $178 million and Citibank South Dakota experienced the largest annual increase in loan loss provisions — up 1.4 percent to $579 million.

Additionally, adjusted nonperforming loans were reported at $56.2 billion in the second quarter — the highest level since December 2003 when it was $63.4 billion. Adjusted nonperforming assets grew annually to total 0.51 percent of total industry assets, with the increase primarily comprised of residential and construction loans.

“As the mortgage crisis continues, we expect continued elevated reserve activity for the next few quarters,” said, additionally noting that “lower interest rates will improve margins but asset quality problems will continue to put pressure on earnings.”

Bear Stearns said in a conference call that it recognized net inventory mark downs in its fixed-income sector of about $700 million during the third quarter ended Aug. 31. The mark downs were primarily related to mark-to-market losses experienced in residential mortgages and leveraged finance activities. Additionally, Bear said it currently has a mortgage and asset-backed inventory of about $45 billion, down 10 percent from the third quarter’s end.

Sterling Savings Bank Chairman and Chief Executive Officer William W. Zuppe intends to retire as CEO on Dec. 31, a news release stated. Heidi B. Stanley will replace Zuppe and has also been appointed to the role of president.

Cohen, Milstein, Hausfeld & Toll P.L.L.C. said it filed a lawsuit on behalf of purchasers of Fremont General Corp. common stock from May 9, 2006, through Feb. 27, 2007. Fremont is accused of issuing numerous materially false and misleading statements that caused its securities to trade at artificially inflated prices.

Great River Bank & Trust entered into a written agreement with the Federal Reserve Bank of Chicago, the Federal Reserve Board announced. The Iowa-based bank agreed to ensure its lending management and staff are adequately qualified and trained. It also agreed to additional and ongoing planning and reporting.

In addition to settling disputes with Freddie Mac, American Home Mortgage Investment Corp. announced it resolved the issues surrounding loans it serviced for Ginnie Mae. The Melville, N.Y.-based company had been unable to make tax and insurance payments due to losing access to the homeowner escrow accounts immediately prior to it’s bankruptcy filling. The payments have been made and Ginnie has agreed to give American Home a limited period of time to sell the servicing rights associated with its loans.

A bankruptcy court approved for an entity sponsored by WL Ross & Co. LLC to be the stalking horse bidder for American Home Investment’s mortgage servicing platform and rights, which are estimated to have a total purchase price of about $500 million at the auction scheduled for Oct. 5, according to a news release. American Home’s servicing portfolio has more than 200,000 loans and over $50 billion of unpaid principal balance.

First Magnus Financial Corp. has agreed to not fight for nearly $1.1 billion in loans it sold to Washington Mutual Inc. because WaMu would likely incur a significant deficiency if it sold the loans and would have the right to make a claim against First Magnus’ bankruptcy estate, according to documents filed Friday in a U.S. Bankruptcy Court of Arizona.

In exchange, WaMu agreed to drop a disputed claim on a separate pool of $3.2 million in First Magnus mortgages. Relinquishment of the claim will provide First Magnus with assets that can be sold for “much needed cash” and eliminate the need for litigation on this matter, the documents read. First Magnus, which collapsed into bankruptcy last month and is going out of business, said the agreement allows it to sell those loans and use the proceeds to complete the wind-down of its operations.

Allied Home Mortgage Capital Corp., the self-described largest privately held mortgage banker/broker in the country, announced Tuesday it expanded its network with the opening of another branch in Dallas, Texas.

The Fed said Tuesday it approved for County Bank, Merced, Calif., to purchase the assets and assume the liabilities of 11 National Bank of Arizona branches located in California. The acquisition will make County Bank the 40th-largest insured depository institution in the Golden State.

Fremont announced Gerald J. Ford has backed out of a deal to acquire of Fremont Investment & Loan. While the company “does not necessarily agree with the factual positions taken by Mr. Ford,” it is discussing revised terms under which an entity controlled by Ford would proceed with the purchase.

The Santa Monica, Calif.-based lender additionally said it expects to file its 2006 annual report and its reports for this year’s first and second quarters in mid-October.


Coco Salazar is an associate editor and staff writer for

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