Shares of New Century Financial Corp. slumped 9% Friday after the subprime lender and investor warned that its 2005 profit would fall short of expectations.
The culprit: higher interest rates and housing market concerns.
“Recent trends in interest rates, coupled with concerns over housing prices, energy costs and other inflationary pressures, have caused a significant deterioration in the secondary market for loans, causing our projected operating margins to fall to unanticipated levels,” said Chief Executive Robert K. Cole. “We are lowering guidance today based on this tougher-than-expected environment for our industry.”
The Federal Reserve Board raised rates 25 basis points earlier this week to 3.75%, its highest level since June 2001.
The Irvine-based real estate investment trust said it was cutting its earnings forecast by about 13% to a range of $408 million to $437 million, based on 56.4 million shares outstanding.
New Century, which loans to borrowers with less-than-perfect credit, has seen its shares fall 44% this year.
New Century recently told investors that it had thought about spinning off its mortgage subsidiary if the company’s shares continue to fall.
The company now has a dual structure.
New Century’s mortgage arm funds loans from brokers and gets business directly from borrowers. The mortgage unit has fueled the company’s growth in the past few years.
The parent company is a real estate investment trust that holds loans as investments and pays dividends to shareholders.
New Century reaffirmed its dividend guidance on Friday. Shares were trading at $35.85.
Shares of Irvine-based subprime lender ECC Capital Corp. also slumped Friday, down 7% to $3.58.
