Investing in Lenders: Adios New Century...
By Ian L. Cooper
It was March 13, 2007 when we reported that New Century would soon be toast… kaput… done, if you will. Here was a $22 billion company that watched its stock plummet more than 90 percent-plus from $30+ to less than $1 on a federal inquiry into accounting and stock trading, fears of bankruptcy, disclosures that all of its lenders are pulling funding to the company, and now bankruptcy.
In filing, the sub-prime lender listed more than $100 million in assets and more than $100 million in debt. And, it’s being reported that 54 percent, or 3,200 employees w2ould be pinked slipped in an effort to cut costs and prepare for a possible sale of the company. In short, the employees were shafted. But they should’ve seen it coming.
Was it really a big surprise that New Century Financial filed for bankruptcy after several lenders forced the company to buy back billions of dollars in bad loans? Not at all… We saw it a mile away.
New Century, or the poster child for sub-prime woes, only serves as an example of the greater misery encapsulating the broader mortgage industry, especially sub-prime. The worst is far from over for the broader housing and lending market as sub-prime woes spill over. We’re not close to a bottom, despite what the Fed would have you believe. There’s spillover into prime/Alt-A loans, housing prices, and eventually consumer spending, which could leave us contending with recession woes.
Your best bet is to continue shorting housing and lending names. Don’t expect to see a housing bottom until spring 2008, the earliest. Go long any housing or lending name before that and you’d be better off flushing your hard earned cash.
Take care,
Ian L. Cooper, Editor, Death Cross Trader
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