Shares of Newport Beach-based Downey Financial Corp. surged as much as 35% Friday before settling at an 8% gain after Congress passed a bailout package that could prove to be the last hope for the mortgage lender.
The company has a market value of about $70 million, off some 90% in the past year.
The savings and loan operator has been pressed by federal regulators to come up with money to cushion against bad loans, which left Congress’ plan to buy $700 billion in similar loans from financial institutions one of its few remaining options.
But it is still unclear which institutions will benefit directly from the rescue plan.
Downey has been looking to sell real estate to come up with money.
Non-performing assets of the company, which are mostly bad loans, stood at 14.68% for August, according to Downey.
The amount of bad loans has declined slightly for the last couple of months after increasing monthly for about a year.
Last week Keefe, Bruyette & Woods Inc. analyst Frederick Cannon raised his target on the company in a show of confidence for its new chief executive.
In September Charles R. Rinhart became chief executive of the company after replacing Thomas E. Prince, who had been in the role temporarily after stepping in for long time executive Daniel D. Rosenthal.
Also replaced was cofounder and Chairman, Maurice L. McAlister, with Michael D. Bozarth taking his place.
Downey was one of the largest originators of option ARM loans, which gave borrowers low teaser rates then reset higher a couple years later.
The majority of the thrift’s loans began to reset toward the end of last year, carrying into this year.
