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see the latest from the Orange County Business Journal’s Web site.
It’s been three months since a group of Orange County bankers took over faltering Fremont General Corp., the onetime subprime mortgage lender.
Since then, Chief Executive Stephen Gordon has moved the company from Santa Monica to its longtime Brea hub and has sought to turn Fremont into a community bank.
There’s no word from Gordon and other executives on how things are going. They’re not talking, presumably because they are racing against a ticking clock.
Last month, federal bank regulators issued a rare ultimatum saying Fremont Investment & Loan, the company’s main business, needs to raise money or face a shutdown by the end of May.
Since 1993, 14 banks have gotten similar warnings from the Federal Deposit Insurance Corp., five of which have failed.
There’s still a chance for a fire sale of Fremont, said Damyon Mouzon, president of Frederick, Md.-based Lace Financial Corp., which rates the creditworthiness of financial institutions.
Mouzon gave Fremont its lowest rating after the FDIC told it to stop making subprime loans a year ago.
He’s not alone. New York-based Standard and Poor’s and Moody’s Corp. both have low ratings on Fremont.
A Fremont sale would come at a steep discount, according to Mouzon, bringing even more pain for shareholders.
“There’s no way anyone would pay a premium for it,” he said.
Fremont’s shares are down about 97% in the past year with a recent market value of $30 million.
The company’s biggest shareholders include former chief executive and chairman James McIntyre, Birmingham, Ala.-based Harbert Management Corp. and Cleveland-based Ramat Securities.
Possibility of a Sale
In February, Fremont said it was considering a possible sale and was working with Credit Suisse and Sandler O’Neil & Partners LP on possible financing.
Other observers discount the prospect of a sale or a funding.
“The odds of them finding a buyer or raising additional capital at this point are probably pretty low,” Bert Ely, a banking consultant in Alexandria, Va., recently told trade publication American Banker.
Bargain hunters have taken looks at Fremont but none have committed. Texas billionaire Gerald J. Ford considered investing $80 million last fall but then pulled out.
San Diego-based private equity firm Kelly Capital LLC bought a stake in Fremont but cut its holdings last month.
A group of investors including Howard Amster also cut its stake from 6.57% to less than 5%. Amster may see more potential in Pasadena-based Indymac Bancorp Inc., which has lending operations in Irvine, after he and a group of investors increased their stake in the company from 7.4% to 9% in January.
Another scenario for Fremont could be an FDIC takeover of its deposits. In that case, Fremont’s deposits could be shifted to other lenders as part of regulators’ efforts to insure them, according to Mouzon.
Fremont, once the country’s No. 4 maker of loans to borrowers with imperfect credit, has been struggling with defaults since last year.
The company runs an industrial bank with $7.5 billion in assets. It lost $879 million last year and had no reserves to handle loan losses at the end of fourth quarter.
“Their earnings are decreasing and they have issues with capital levels,” Mouzon said.
Fremont has gone after more deposits. Last year it paid out $359 million in interest, up from $73 million a year earlier, according to Mouzon.
The FDIC’s ultimatum limits what Fremont now can pay depositors in interest.
In November, Fremont hired Gordon as chief executive. He and a group of colleagues were confirmed by regulators a month later.
Gordon ran Irvine-based Commercial Capital Bancorp Inc., which Washington Mutual Inc. bought for $1 billion in 2006.
Most of Fremont’s new management hails from Commercial Capital.
In an interview late last year, Gordon said his first priority was damage control. The company likely would be renamed and possibly turned into a community bank, he said.
Fremont’s workforce has dropped from 3,500 people to about 830 in the past year.
Troubles continue to mount: Last month, Fremont received default notices from buyers of $3 billion of its subprime loans packaged as bonds.
In March, Fremont said it would delay a $6.6 million interest payment on a $169 million loan as it renegotiates with the lender.
The company’s annual report also is delayed. Its annual meeting for shareholders, originally set for this week, is off.
In the past year, Fremont has sold off $10 billion in loans, including $6 billion in commercial real estate loans and $4 billion in subprime mortgages.
A year ago, it sold its commercial real estate lending business to New York-based iStar Financial Inc. for about $2 billion.
Last month, Fremont said it would sell mortgage servicing rights on $1.9 billion worth of loans for an undisclosed sum to Greenwich, Conn.-based Carrington Capital Management LLC.
In January, the company agreed to sell its Irving, Texas, loan servicing facility for undisclosed terms.
