Downey Reaches Agreement on Regulatory Consent Orders and Enhances Financial Strength
Raises $109 Million in Regulatory Capital
Last update: 5:16 p.m. EDT Sept. 5, 2008
NEWPORT BEACH, Calif., Sept 05, 2008 /PRNewswire-FirstCall via COMTEX/ — Downey Financial Corp. (DSL:Downey Financial Corp. (Del.) (Holding Company)
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Last: 3.10+0.77+33.05%
4:01pm 09/05/2008
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DSL 3.10, +0.77, +33.1%) today announced that the Company and its subsidiary, Downey Savings and Loan Association, F.A. (the “Bank”), have reached agreement with the Office of Thrift Supervision (OTS) on Consent Orders which, to a large extent, formalize certain measures previously announced by the Company to enhance the Bank’s financial strength. As a direct result of these measures, the Company also announced the sale of certain non-core real estate assets to a third party for aggregate cash proceeds of $110 million. Downey expects to report a net pre-tax gain of approximately $68 million from this sale. That gain, combined with a dividend to the Bank from a wholly owned subsidiary of the Bank, will result in an immediate increase in the Bank’s regulatory capital of approximately $109 million.
“We have been working closely with our regulators to aggressively address the challenges Downey has been facing in this unprecedented financial environment and are pleased to have reached agreement on a formal plan that addresses the OTS’ concerns,” said Michael Bozarth, Downey’s Chairman of the Board. “The Orders reflect a number of measures that Downey has already undertaken and, in some cases, is close to completing. Having reached agreement on these Orders, and having successfully raised a significant amount of new capital, Downey has made substantial progress.”
“Our customers can rest assured that the Orders do not restrict us from meeting their banking needs and providing the services and customer care they have come to expect,” added Mr. Bozarth. “Downey continues to serve its customers with its full range of lending and retail banking services.”
The Orders require, among other things, that the Bank meet and maintain a minimum Tier One Core Capital ratio of 7% and a minimum Total Risk-Based Capital ratio of 14% at each quarter end. In addition, the Bank must complete a capital raising initiative by December 31, 2008. Downey has already made substantial progress on this capital plan and has enhanced the Bank’s regulatory capital by approximately $176 million through the real estate sale and the subsidiary dividend described above and previously disclosed contributions of capital from the Bank’s parent company. The Orders also require that, within 45 days, the Bank submit for OTS review and non-objection a comprehensive classified asset reduction plan, a long-term business plan, a real estate owned disposition plan, and a plan to strengthen executive management.
Since Downey is now subject to an order requiring it to meet and maintain a specific capital level, it is deemed “adequately capitalized” under OTS regulations even though it exceeds minimum regulatory capital ratios that would otherwise qualify it to be “well capitalized.” As a result, the Bank is subject to restrictions on accepting brokered deposits, which have not historically been a significant part of the Bank’s deposit base, and upper limits on interest rates the Bank may pay on deposits.
Mr. Bozarth continued, “Downey’s Board and management will continue to diligently explore a broad range of strategic alternatives by working with our financial advisor, Sandler O’Neill + Partners, L.P. to further enhance the Bank’s capital position. We have made substantial progress in strengthening this institution and are committed to continuing to meet the demands of this challenging environment.”
