Year in review: New Century Financial had a pretty good 2006. Of course, it’s been an entirely different story this year. In February, the wheels began to fall off from what was once the country’s second-largest subprime mortage lender.
A Feb. 7 filing with the Securities and Exchange Commission has rendered much of New Century’s 2006 earnings incorrect, incomplete and largely irrelevant. It also gave a much more negative view of the future than what analysts had predicted, leading to last week’s bankruptcy filing.
New Century warned of accounting errors in previously stated 2006 results, an unexpected fourth-quarter loss and projected worse-than-expected loan volume in 2007. The accounting errors largely pertain to how New Century accounted for losses on repurchased loans.
Any restated financial statements for 2006 will likely show a considerable loss.
Until the announcement, New Century had been seen as one of the better-run subprime lenders.
It had boosted loan volume year over year, and working to grab business from more credit-worthy customers. It seemed to be taking market share away from some other competitors, including Orange-based Ameriquest Mortgage Co.
What’s ahead: Trying to figure out New Century’s future was the biggest business story in the county so far this year.
Following its bankruptcy filing, the company’s plan became a little clearer. It’s a fire sale. New Century plans to sell off most of its assets, including its loan-making and servicing businesses, as well as its loans, through court-approved auctions.
The company announced close to $190 million worth of sales at the time of its filing. More should be on the way.
The company stopped accepting new loans about a month ago and scrambled to meet the demands of large banks that had initially funded its loans and later bought them packaged as bonds.
Along with the bankruptcy filing, the company said it was cutting more than half of its work force.
However, the company recently asked a bankruptcy court to approve payments for upward of 1,300 loan officers. Keeping the employees will increase the value of its lending business, New Century’s lawyers said.
On top of that, the SEC and the Justice Department are investigating New Century’s executives for stock trades and accounting errors. And a lengthy list of shareholder lawsuits have been filed against the company and its executive team, alleging they misled investors prior to the stock drop, even while they were selling shares.
New Century’s executive team and directors had been putting in long hours at the company’s Irvine Center Towers headquarters in recent weeks, working to salvage the company, according to reports.
Wall Street’s take: The market’s response to New Century’s troubles has been swift, brutal and devastating.
As of last week, New Century had lost nearly all of its market value since Feb. 7. That’s more than $1.5 billion in market value that’s disappeared in a matter of weeks.
Shares now trade on the Pink Sheets after being delisted from the New York Stock Exchange.
,Mark Mueller
WHO’S IN CHARGE
BRAD MORRICE
President, chief executive, New Century Financial
Joined company: 1995, cofounder
Education: received his law degree from the University of California, Berkeley (Boalt Hall), and a master’s in business administration from Stanford University
Career: Before New Century, was president and chief operating officer of Plaza Home Mortgage from 1994 until New Century began operations. Also served as general counsel and director of Option One Mortgage Corp. From 1990 to 1993, was a partner in the law firm of King, Purtich & Morrice.
Notable: Described as hands-on, broke the news of bankruptcy, layoffs to employees.
Headquarters: 18400 Von Karman Ave., Irvine
Employees: 2,800; 1,025 in OC
Business: subprime mortgage lender
Market value, as of April 2: $53 million
Revenue for 12 months ended Sept.:
$2.7 billion, up 59%
Net income for 12 months ended Sept.:
$392.5 million, up 3.7%
