Updated to include latest share price. FORT WORTH, TEXAS ( TheStreet) -- AmeriCredit ( ACF) shares could see some weakness following the resignation of Bruce Berkowitz from its board. Berkowitz is the co-founder and chief investment officer of Fairholme Capital Management, one of the subprime auto finance company's largest institutional investors. He also serves as portfolio manager of the firm's main investment vehicle, the Fairholme Fund ( FAIRX), which held a 24.2% stake in AmeriCredit as of Sept. 30. Berkowitz's resignation, which AmeriCredit announced on Monday, could mean that Fairholme is getting ready to sell some of its holdings in the company. "It's hard to tell what the exact motivation here is, but I don't think it can be interpreted as a positive," says Sameer Gokhale, an analyst at Keefe Bruyette & Woods, referring to Berkowitz's decision to step down from the board "To the extent that you have a large shareholder with a seat on the board who is now stepping down suggests that as a possibility that Fairholme may be seeking to reduce its stake in AmeriCredit." AmeriCredit said Robert Sturges, the president and CEO of Nevada Gold & Casinos ( UWN), would be replace Berkowitz. Sturges is Fairholme's designee to AmeriCredit's board. Fairholme Capital is AmeriCredit's second largest institutional investor behind Leucadia National ( LUK). Fairholme increased its stake in AmeriCredit back in December of last year through a debt-for-equity swap as the company was struggling for funding given the frozen credit markets. In the deal, AmeriCredit issued approximately 15.1 million shares of common stock to Fairholme, valued at $6.02 a share, in exchange for $108 million of par value 8.50% Senior Notes due in 2015. As part of the agreement, Fairholme and its affiliates agreed to limit its ownership of the lender's common stock to 28.9%. Prior to the exchange, Fairholme owned about 19.8% of AmeriCredit's outstanding shares.
As of Sept. 30, Fairholme owned a total of 32.3 million shares of the company, worth $510 million at the time. Comparing that figure to the estimated value of the firm's holdings at the end of the second quarter, Fairholme had seen appreciation resulting in a tidy $73 million paper-profit on its total AmeriCredit investment But, given the tremendous performance of the stock over the past year and the resignation of Berkowitz, Fairholme could soon be looking to take some money off the table. Shares of AmeriCredit rose a nickel to $19.93 in early trades on Wednesday. The stock reached its high for the year of $20.10 on Nov. 11, and, based on Monday's close, it was up more than 300% for the past 52 weeks. The near-term low for the shares is $3.07, set on March 6. "Anytime a big shareholder sells shares, there could be some downward pressure on the share price. In this case
AmeriCredit shares have had a very nice run," Gokhale says. "It shouldn't be a complete surprise. Our view is that the shares are fully valued at this point in time given limited earnings power at least in the near term." Berkowitz, who has been on AmeriCredit's board for just under a year, is stepping down due to the "demands of his position" at Fairholme, according to an AmeriCredit release. An outside Fairholme spokesman said the demands include the start of a new fund in the near future, according to an e-mailed statement.
The Fairholme spokesman declined comment on whether the firm was planning to sell shares of AmeriCredit, and made no further statements. Am AmeriCredit spokeswoman, referring to comments made in the company's press release, said Berkowitz did not leave on bad terms, nor was the resignation a result of any disagreement on strategy or with management. AmeriCredit is one of the few public companies that specifically target the subprime automobile loan market -- a niche that came under great pressure during the housing downturn and freezing credit markets. The company says it generally charges higher interest rates in order to serve this lower credit market. AmeriCredit acknowledges it experiences a higher level of credit losses than other auto financing companies as a result of its concentration on subprime customers, and relies on securitizing auto loans to obtain funding. AmeriCredit made a profit of $26 million, or 19 cents a share, in the three months ending September 30, its fiscal first quarter, vs. a loss in the year-earlier quarter. CEO Dan Berce said during the company's first-quarter conference call last month that AmeriCredit was seeing "a moderation in the rate of deterioration in our credit performance." "With ample liquidity, sufficient warehouse capacity and an improving capital markets environment, we are well-positioned to rebuild loan origination levels," Berce added. As the credit markets thaw with the government initiating a host of federal programs to get credit flowing again, AmeriCredit's outlook is positive, Gokhale says.
But "the portfolio has shrunk dramatically and that's going to put pressure on earnings growth," he says. "Earnings in the near term may not be strong enough to justify the valuation." Fairholme isn't the only institutional investor taking bets on financial firms these days. Hedge fund investor John Paulson, which as been betting big on regional and large banks including Bank of America ( BAC), JPMorgan Chase ( JPM) and Regions Financial ( RF), said in a filing last week that it bought shares in Citigroup ( C) during the third quarter. -- Written by Laurie Kulikowski in New York.