Billionaire’s firm may buy Newport S&L;
An investment firm run by billionaire and former thrift executive Gerald J. Ford said Monday it had accumulated a 6.8% stake in Downey Financial Corp. and might want to acquire the Newport Beach-based savings and loan.
Downey shares soared $3.59, or 12%, to $33.58 on the news.
In a filing with the Securities and Exchange Commission on Monday, Hilltop Holdings Inc. said Ford met Friday with representatives of Downey -- including Chairman Maurice McAlister -- and planned further talks about a possible acquisition or other transaction.
Dallas-based Hilltop said it spent $63.4 million from Nov. 2 to Nov. 16 for its 1.89-million-share stake. That works out to an average of $33.54 a share.
Even after Monday’s gain, Downey shares are down 54% this year, pummeled by rising defaults on home loans.
Downey specializes in option adjustable-rate mortgages, which can let borrowers pay less than their regular monthly payment amount and in some cases less than the amount of interest accruing that month.
Ford, the ex-chief executive officer of Golden State Bancorp and one of the world’s richest people, broke off talks last month to invest in Santa Monica-based lender Fremont General Corp.
Buying Downey, which last month posted its first quarterly loss since 1996 amid the state’s worst market for home sales in 15 years, could be a smart investment, said Gary Gordon, an analyst at Portales Partners in New York who has a “buy” rating on the thrift.
“The housing market has turned very nasty and they will be struggling for a couple of years, but it would be tough to replicate their branch network,” Gordon said.
Downey, however, has little reason to pursue a sale because it has double the capital required by regulators, Gordon added.
But Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc., said a sale could be prudent for the savings and loan.
“We believe the pressures on the California home market could provide an incentive for the company to find a partner,” Cannon wrote.
Downey lost $23 million, or 84 cents a share, in the third quarter of this year -- its first quarterly loss since 1996. The company originated or bought $694 million of loans in the third quarter, down 57% from a year earlier.
Downey ended September with $14.4 billion in assets. It has about 200 banking and home-loan branches.
Ranked by deposits, Downey is the fourth-largest publicly traded bank or thrift based in California, according to the Federal Deposit Insurance Corp. The largest is San Francisco-based Wells Fargo & Co., followed by City National Corp. and IndyMac Bancorp Inc. Counting all banks, Downey ranks 11th in market share, with 1.47% of California’s deposits.
In the 1990s, Ford acquired California-based savings and loans First Nationwide Bank, Glendale Federal Savings and California Federal Bank. He and an investment group sold the resulting company -- Golden State Bancorp -- to Citigroup Inc. in 2002 for $5.8 billion.
