Shares of Newport Beach-based Downey Financial Corp. took a wild ride Thursday, even for a company that’s seen its share of volatility in recent weeks.
The troubled savings and loan operator saw its shares open up 34% higher before ending the day down 20%.
The early optimism was driven by an analyst report that placed faith in Downey’s new chief executive, Charles Rinehart, and prospects for a government bailout of lenders with bad debt.
Keefe, Bruyette & Woods Inc. analyst Frederick Cannon raised his price target on Downey to $5 from $3. Downey’s shares closed at $3.90 Thursday with a market value of $110 million.
But the shares fell in afternoon trading on fears about Seattle-based Washington Mutual Inc., the country’s largest savings and loan operator.
WaMu saw a downgrading of its credit rating and reports that some potential bank buyers have walked away.
That was before the federal regulators seized the thrift late Thursday and JPMorgan Chase & Co. struck a deal to acquire the deposits and some of the branches of WaMu.
Downey has been under pressure from bad mortgages caused by adjustable rates that became unaffordable for its borrowers when the mortgages reset at higher rates.
On Monday, the company named Rinehart, the former chief executive of H.F. Ahmanson & Co.’s Home Savings,which was sold to WaMu in 1998,to try to lead a turnaround.
