Irvine-based ECC Capital Corp., parent company of mortgage financier Encore Credit, said Tuesday it’s cutting its third-quarter dividend by 18% from the second in another sign of trouble for subprime lenders.
The company said it wanted to preserve capital by cutting its payment to shareholders.
“In light of today’s business environment and the current state of the equity markets, we are focused on managing our business conservatively and preserving our flexibility with respect to capital,” said Shabi Asghar, president and co-chief executive of ECC Capital. “We believe this strategy will enable us to take advantage of future business opportunities, strengthen our balance sheet and maintain a sustainable dividend.”
ECC has felt the squeeze of higher short-term rates, shrinking profits and stepped up competition in subprime lending, which focuses on borrowers with imperfect credit.
The company and others make mortgages and then package them as bonds for Wall Street investors. The proceeds of bond sales go to fund more loans.
ECC and others make bond payments tied to rising short-term rates while income from mortgages typically is fixed.
The narrowing of the spread between the two eats into profits.
Last week, Irvine-based New Century Financial Corp., the second-largest subprime lender after Orange’s Ameriquest Capital Corp., warned its 2005 profit would fall short of expectations.
On Tuesday, investment bank UBS AG downgraded shares of New Century.
