From the OC Register this morning (2/13) Sorry for the long cut & paste.
Tuesday, February 13, 2007
ECC sells operations to Bear Stearns, pays the banker $7 million
ECC Capital of Irvine closed the sale of its loan-making operation to Bear Stearns. Because of poor loan sales, it had to pay Bear Stearns $7 million.
By MATHEW PADILLA
The Orange County Register
ECC Capital Corp. of Irvine said Monday that it closed the sale of its loan-making operation to New York-based investment bank Bear Stearns, with ECC effectively paying Bear Stearns to take over the troubled unit.
The two companies had originally agreed on a sale price of $26 million, but because ECC sold some loans for less than expected, it owed $33 million to Bear Stearns, which had lent money to ECC to fund the loans. In the end, ECC paid Bear Stearns a net $7 million.
ECC had said it would pay an 80-cents-per-share dividend to investors within 30 days of the sale, but the company now says the timeline for the dividend is unclear.
Just about all that’s left of ECC, which began losing money months after going public in 2005, is its residual interest in loans that have been sold as securities to investors. That comes with some risk as borrowers default in higher numbers amid a housing slump. ECC could be obliged to buy back some loans.
UBS Investment Bank, the London-based unit of Switzerland’s largest bank, UBS AG, said in a November report that subprime loans made in 2006 were going into default at the highest rate since 2000 and were on track to be the worst-performing loans ever issued. Subprime loans are those made to borrowers with poor credit.
Loan buybacks are cutting deep into the profits of other subprime lenders. Irvine’s New Century Financial, for example, is restating three quarters of last year’s earnings and will report a loss for the fourth-quarter, in large part because of loan buybacks.
New Century’s stock plummeted 43 percent over the past three trading days on the news, losing about $700 million in market capitalization. On Monday, it lost another dollar, closing at $17.21, for a 5 percent dip from Friday’s close.
Several other lenders active in subprime loans took a hit Monday, including Calabasas-based Countrywide Financial, whose stock slid 3.3 percent to close at $40.84. And stock of Fremont General Corp., owner of Brea-based Fremont Investment & Loan, slid 1.5 percent to $11.86.
Amid ECC’s sale, its co-chief executive and president, Shabi Asghar, resigned his positions with ECC and will continue to lead the unit in a new position with Bear Stearns. Alanna Darling, ECC’s general counsel, also resigned her position with ECC to join Bear Stearns. Finally, Douglas Ingram, chief administrative officer of Allergan, will resign from ECC’s board, effective March 1.
Roque Santi, ECC’s chief operating officer, becomes president. And Steve Holder, co-chief executive and board chairman of ECC, is buying 500,000 shares of ECC from Asghar for $.93 per share. He may buy more stock from Asghar.
The two companies had originally agreed on a sale price of $26 million, but because ECC sold some loans for less than expected, it owed $33 million to Bear Stearns, which had lent money to ECC to fund the loans. In the end, ECC paid Bear Stearns a net $7 million. ECC had said it would pay an 80-cents-per-share dividend to investors within 30 days of the sale, but the company now says the timeline for the dividend is unclear.
Unbelievable. This some merger.
I do believe the timeline for the dividend is never.
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