Fremont on brink of collapse
Fremont General Corp., a Brea banking company that regulators forced out of the sub-prime mortgage business last year, said Tuesday that two purchasers of its loans had declared it to be in default, raising the possibility that they could put it out of business.
Shares in the battered parent of Fremont Investment & Loan fell 24 cents, to 46 cents. The stock has fallen 96% from its 52-week high of $13.80.
Fremont said it couldn’t demonstrate it still had a net worth of $250 million, as it promised to do when it sold $3.15 billion in loans last March to the two buyers, which it didn’t identify.
The company, until recently based in Santa Monica, has delayed filing its 2007 financial statements, saying it is trying to quantify its mounting losses and determine how much in reserves it must set aside.
Fremont reported a $202-million loss for 2006 and an additional $837-million loss through the first nine months of 2007. Last week, it said it might have to write down its assets more than it had already done, adding to those losses.
The company also said it was running short of cash to pay its debts and was considering putting itself up for sale. As of last week, the parent company had just $21 million in cash available and was deferring payments on some of its bonds.
The Federal Deposit Insurance Corp., which regulates Fremont Investment & Loan, declared the unit to be operating unsafely last year. The FDIC forced it to stop making highly risky home loans, many of them involving 100% financing for people who didn’t document their incomes.
Such loans and others marketed to borrowers with high risk factors have caused foreclosures to rise across the country to the highest levels since the Great Depression. Some analysts predict the debacle will cause $400 billion in losses at financial institutions.
Fremont Investment had $7.6 billion in assets at the end of 2007, down from $12.7 billion a year earlier. Its deposits totaled $7.1 billion at the end of last year, down from $10.1 billion at the end of 2006.
The FDIC insures deposits at Fremont’s 22 branches for up to $100,000 per depositor. Retirement accounts are insured separately for up to $250,000.
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