Wednesday, March 14, 2007

New Century Delisted

Shares of New Century Financial Corp., until recently a leading subprime mortgage lender, were delisted from NYSE after it was announced that federal investigators have issued a subpoena for “certain documents”. Trading of company stock was halted on Monday, while the exchange was trying to evaluate the mortgage lender’s financial standing.

New Century has defaulted on its obligations to most of its lenders, all of which have cut financing in recent weeks and demanded debt repayment. Late in February, the company announced that federal prosecutors were undertaking a criminal probe into its accounting and stock trading practices, after it was disclosed that accounting errors led to underestimating of loan-repurchase risk and inadequate risk management at the company.

After dramatic drops in New Century’s share price and a number of shareholder lawsuits filed against the company, this is the most recent blow that may drive the lender closer to bankruptcy, something analysts have been anticipating for quite a while. New Century stock last traded at $1.66 before the New York Stock Exchange halted trading, down from a 52-week high of more than $50 in May. After all that’s happened in recent months, I don’t understand what hope is left that this lender will NOT file for bankruptcy and why are company officials attempting to do the obviously impossible – save a company with billions of debt that doesn’t have sufficient equity to repay them. Or perhaps they’re just pretending – after all it was announced that several of New Century’s top officials have recently sold most of the company shares they owned and raised hundreds of thousand in the meantime. No, they don’t seem to believe it will last much longer.

New Century also disclosed another “inadvertent” error in its earlier statements, where its obligation to Credit Suisse First Boston was estimated at $900 million instead of $1.4 billion. Looks like they’re so nervous about dealing with their situation at the moment, and so busy negotiating with their investors, that they’re starting to make mistakes. Another one could well prove fatal.

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