Irvine-based subprime lender New Century Financial Corp.’s earnings before taxes slumped 42% to $93 million in the second quarter, the company said Thursday.
The company said it is making less money selling loans because of competition and market conditions among investors. New Century makes loans to people with imperfect credit.
Shares of New Century were down 9.1% to $48.1 Thursday.
New Century projected its 2005 profit would be lower than its prior guidance. It reaffirmed its previous dividend forecast.
Market leader Ameriquest Capital Corp. of Orange has been aggressively pricing loans, forcing down profit margins, according to other lenders.
At the same time, the Federal Reserve Bank has been raising a key short-term interest rate. Subprime and other lenders sell their loans as securities to investors. Payments on those bonds are tied to short-term rates.
“As a result of the competitive environment and secondary market conditions, we expect our gain-on-sale execution to remain at compressed levels for the remainder of the year,” said Patti Dodge, chief financial officer, in a statement.
The company also issued $1 billion in fixed-rate bonds, “our first such transaction in over three years and resulted from an opportunity to better match fixed-rate assets with fixed-rate liabilities,” Dodge said.
