shares were plummeting Thursday after the troubled savings and loan posted a net loss far in excess of Wall Street's expectations and said good-bye to its CEO as it evaluates strategic alternatives.
Newport Beach, Calif-based Downey, whose rapidly declining loan quality has
placed it in a precarious position
, said COO Thomas E. Prince would replace retiring CEO Daniel Rosenthal on an interim basis. The company also said Maurice McAlister, Downey's chairman, founder and largest shareholder, retired from the board of directors. Independent directors Michael Bozarth and Gary Brummett will replace the two departing executives as chairman and vice chairman.
"The company has historically maintained high levels of capital," Bozarth said in a company statement. "Our board is committed to moving forward as promptly and aggressively as possible to take all appropriate and necessary action to keep the company on a firm and solid footing, fully able to meet the challenges of current market conditions."
Bozarth said Downey was "unified in our commitment to acting in the best interests of all of our stakeholders" as it contemplated its next step, but the press release noted there was "no assurance that the exploration of alternatives will result in any transaction."
The news came as the $12.6 billion thrift holding company reported a second quarter net loss was $219 million, or $7.86 per diluted share, compared to the consensus expectation of a $4.60 loss per share.
Shares recently were falling 28.2% to $1.96.
As is usual in this environment, the main factor in the loss was a provision for loan losses of $249 million, up from $237 million last quarter and just $617 thousand in the second quarter of 2007. Lower net interest income, from a smaller balance sheet and rising nonperforming loans also contributed to the loss, as did expenses associated with administering repossessed real estate.
, Downey's asset quality has been worsening at an alarming pace. Nonperforming assets, excluding performing restructured loans, comprised 11.16% of total assets as of June 30, accelerating the pace of credit deterioration from last month and last quarter.
Net loan charge-offs for the second quarter totaled $70 million, up from $37 million last quarter and $1 million in June 2007.
The company reported that its primary subsidiary, Downey Savings and Loan of Newport Beach, California, remained well capitalized as of June 30, with a core capital ratio of 7.57% and a risk-based capital ratio of 14.31%. These were down from 8.43% and 15.28% last quarter.
Loan loss reserves totaled $732 million, and covered 63.78% of nonperforming loans (again, excluding performing restructured loans) and 6.44% of loans held for investment.
Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.