Updated from 10 a.m.
The downturn in the subprime mortgage industry took its toll on yet another lender.
Accredited Home Lenders
plunged more than 9% early Wednesday before staging a recovery. The wild action came after the San Diego mortgage bank swung to a larger-than-expected fourth-quarter loss but then made soothing comments about the second half of 2007.
During the quarter, Accredited had a net loss of $37.8 million, or $1.49 a share, reversing the year-ago profit of $43.3 million, or $1.96 a share, in the year earlier period. Revenue dropped 60% to $59.9 million.
Analysts were looking for the company to post a loss of 33 cents a share on $85 million of revenue during the quarter.
The decrease in revenue "is primarily the result of lower gain on sale premiums on loans sold, higher provisions for repurchases and lower net interest income," Accredited said.
During the quarter, the lender completed its $340 million acquisition of Aames Investment, which was originally announced in May. Aames is also an originator of nonprime loans through a network of 76 retail branches and three wholesale offices.
"Results from the fourth quarter were dissatisfying," says CEO James Konrath. "We spent much of the quarter completing the integration of Aames' retail business and continued to implement changes to our underwriting guidelines, both of which negatively affected key profitability drivers such as volume, costs and premiums."
While Accredited did not issue earnings guidance for this year because of the "high level of uncertainty surrounding key external conditions that determine profitability," Konrath was more optimistic about the mortgage environment in the second half of this year.
"Challenges persist in the current market, which we expect to largely continue through the first half of 2007," Konrath said. "Accredited remains committed to being a growth company and we expect to realize that goal as origination capacity rationalizes and reasonable margins return to the industry. We are cautiously optimistic that conditions for improvement will begin to emerge in the second half of the year. In meantime Accredited will remain prudent, nimble and opportunistic."
Matthew Howlett, an analyst at Fox-Pitt, Kelton, says despite the ugly quarter, the combination an improved outlook for the mortgage environment with the significant amounts of liquidity that Accredited has on hands reassured investors. He rates the stock outperform.
"The management team has done a good job really boarding up the palace if you will for this type of environment," Howlett says. CEO Konrath "is calling for stabilization and losses in the second quarter and improving pricing environment in the back half of '07. We've been waiting to hear that type of guidance."
The news comes a week after subprime lenders
each warned of poor fourth-quarter results. New Century shares lost a third of their value as a result.
On Wednesday, HSBC's stock rose 31 cents to $89.92 and New Century rose 43 cents to $19.02. After the early swoon, Accredited bounced back and was up 39 cents to $25.61.