Damage control is the first order of business for Stephen Gordon and his team of former Commercial Capital Bancorp Inc. executives tapped to turn around battered Fremont General Corp.
Gordon and several others were hired last week to run Santa Monica-based Fremont, whose main business is Brea-based industrial bank Fremont Investment & Loan.
The task is onerous.
Fremont, once the nation’s No. 4 maker of subprime mortgages to borrowers with imperfect credit, has been one of the harshest casualties of the sector’s downturn.
Earlier this year, federal regulators shut down Fremont’s mortgage lending and ordered the company to come up with a plan to restore its finances.
In recent months, Fremont has sold off $10 billion in loans to stay afloat.
Last week, the company had a market value of $200 million, down 90% from early 2006.
When the dust settles, Fremont could end up becoming a community bank and is likely to take on a new name, Gordon said.
“We’re making every effort to turn this around,” he said.
Beyond that, Gordon said a plan for what a reworked Fremont might look like hasn’t been set yet.
“I’ve only been here two days,” he said in an interview last week.
Gordon cofounded Irvine’s Commercial Capital Bancorp in 1999 and sold it to Washington Mutual Inc. for nearly $1 billion in 2006.
He and other executives rapidly grew Commercial Capital through acquisitions and by lending to buyers of apartment buildings. Before Commercial Capital’s sale, it was the state’s fifth-largest savings and loan.
At Fremont, Gordon takes over from Louis Rampino, who resigned last week. Pending regulatory approval, Gordon also is set to run Fremont Investment & Loan.
He’ll work with a familiar face, David DePillo, who’s joining as vice chairman of the parent company and of Fremont Investment & Loan.
DePillo cofounded Commercial Capital with Gordon and was the thrift’s president and chief operating officer.
The two have brought a group of former Commercial Capital executives with them: Richard Sanchez, who’ll serve as executive vice president and chief administration officer; Thea Stuedli, who’ll be executive vice president and chief financial officer; and Donald Royer, who’ll serve as executive vice president and general counsel.
Fremont already has some restructuring under its belt. Earlier this year, it sold off $4 billion worth of subprime mortgages and $6 billion in commercial real estate loans. It still holds some loans, according to Gordon.
In May, Fremont sold its commercial real estate lending business to New York-based iStar Financial Inc. for about $2 billion.
Regulatory Scrutiny
Gordon will have regulators looking over his shoulder.
In March, the Federal Deposit Insurance Corp. charged Fremont with “operating with management whose policies and practices are detrimental to the bank.”
It required Fremont to “retain qualified management” acceptable to the FDIC and to the California Department of Financial Institutions.
In October, the Massachusetts attorney general said he plans to sue Fremont for unfair and deceptive lending. Fremont has denied the accusations.
Morgan Stanley also is suing Fremont for allegedly breaching several agreements related to the investment bank’s purchase of Fremont mortgages packaged as securities.
Gordon also has to contend with Alabama-based activist hedge fund Harbinger Capital Partners, which owns 9% of the company’s shares.
Fremont was founded in 1963 and runs 22 savings and loan branches throughout the state.
Before getting into subprime lending, Fremont was a workers’ compensation insurer. That business failed and eventually was taken over by the state.
In the early 1990s, New York-bred Gordon cut his teeth in the banking world, earning a name for himself on his path to becoming a partner at Sandler O’Neill & Partners LP.
A decade ago, he came out West, trading in his World Trade Center office for one at Balboa Bay Club in Newport Beach where here launched Financial Institutional Partners Mortgage Corp., a lender to apartment investors.
Commercial Capital grew out of Financial Institutional Partners.
The company went public in 2002 and started stringing together a handful of acquisitions to grab a bigger piece of the region’s apartment and commercial real estate loan market. The thrift nearly doubled in size in 2004 when it bought Hawthorne Financial Corp.
Gordon’s stake in the company was worth about $90 million when it was sold.
Since selling Commercial Capital, he has become chief executive of Vitruvian Group LP, which is starting a private equity fund focused on banks and savings and loans.
DePillo ran Commercial Capital’s apartment loans business. He is a former banker with H.F. Ahmanson & Co.’s Home Savings.
Commercial Capital started when DePillo and Gordon hired 30 of Ahmanson’s apartment loan underwriters.
