S&L struggles amidst housing downturn
KINGMAN - Downey Savings, a California-based savings and loan with one branch in Kingman, announced Oct. 16 that it plans to shut down its wholesale lending department and make additional cuts to its retail loan department, resulting in the loss of approximately 200 jobs.
"The Downey Savings' Board and management team have been evaluating, and will continue to evaluate, our long-term business plan in light of the challenges facing the company, the banking sector and the entire economy," said Chief Executive Officer Charles Rinehart in a statement released the same day. "We have determined that a wholesale lending channel is no longer a necessary component of the plan.
"In addition, while we will continue to originate loans through our retail lending channel, we are scaling back our retail loan department to better reflect the industry-wide contraction in retail lending," Rinehart added.
Downey Savings was identified by the Puget Sound Business Journal as "the last major holder of option adjustable-rate mortgages," loans which financial analysts have fingered as one of the key factors fueling the acceleration of foreclosures in the U.S. following the housing bubble burst of 2005 and 2006.
Since the beginning of the housing crisis, Downey Savings' parent company, Newport Beach-based Downey Financial Corp., has experienced a precipitous drop in stock value from an all-time high of $77.44 a share in July of 2005.
Shares experienced a series of sharp drops as the housing crisis entered full swing in the second half of 2007, dropping from $65.98 in July to $31.11 on Dec. 31.
Downey's stock went through one final rally early this year, starting February at $34.61. But shares went into free fall by the month's end, and by July, Downey's stock had plummeted to under $3 a share.
Yesterday, it closed at $1.40, up 10-cents.
On Oct. 22, Downey posted an $81.1 million net loss for the third quarter of 2008, with $547.7 million in red ink so far this year.
In the press release, Rinehart stated that Downey was working on raising outside capital and was increasing cash-based assets to maintain liquidity in light of "depositor and marketplace concerns" following the collapse or sale of several major banking institutions earlier in the quarter.
While Downey is primarily based in California, with more than 170 branches throughout the state, it also maintains five branches in western Arizona, including the one at 3240 Stockton Hill Road in Kingman.
The company employs approximately 2,400 people.
Elizabeth Stover, a spokesperson for Downey, said Tuesday that she was not at liberty to divulge whether any of the proposed job cuts would affect the Kingman location.
She noted, however, that like most banks, Downey is FDIC-insured, and deposits remain guaranteed up to $250,000.