New Century Understated Debt; Faces SEC Probe, Stock Delisting
New Century Financial said on Tuesday it underestimated its debt to Credit Suisse by $500 million, the latest snafu for a company under investigation by U.S. securities regulators and facing delisting from the New York Stock Exchange.
Analysts said New Century, the largest U.S. independent subprime lender, is teetering on the brink of bankruptcy as defaults among borrowers with poor credit surge.
"There's not going to be many independent subprime lenders left," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon, which has $2.5 billion of assets under management.
A spokeswoman for New Century was not immediately available for comment.
Accredited Home Lenders , which many investors had seen as well capitalized, said early Tuesday that it was looking at ways to raise money after facing margin calls.
Accredited's shares lost more than half their value on Tuesday, pulling down other mortgage lenders, including Impac Mortgage
New Century said in a regulatory filing that it has received a grand jury subpoena requesting documents. The subpoena is part of a previously announced criminal probe into trading in its securities and accounting losses by the federal prosecutor in Los Angeles.
The probes are the latest sign that regulators and prosecutors are taking an interest in the widening crisis in a once-booming industry built around providing mortgages to borrowers with weak credit.
Also in the filing, Irvine, California-based New Century said the Pacific Regional Office of the Securities and Exchange Commission notified the company by letter that it was conducting a preliminary investigation and seeking some documents.
The letter followed an earlier request by the SEC for a meeting with New Century to discuss the events leading up to its February announcement that it would post a fourth-quarter loss and restate each of the previous three quarters' earnings lower.
Since then, New Century shares have lost 89% of their value.
The New York Stock Exchange said on Tuesday that it determined trading in New Century shares should be suspended immediately. New Century expects its shares to be quoted on the Pink Sheets, an over-the-counter market typically listing penny stocks, following suspension, the NYSE said in a statement.
New Century said on Monday that its lenders plan to halt financing, and listed more than $8 billion of obligations that it could be forced to repay.
On Tuesday, New Century said the list understated its obligation to Credit Suisse Group units by $500 million. In fact, that obligation totals $1.4 billion.
Subprime lenders are suffering now after generating fat profits in recent years by making loans to people with weak credit. Because of poor underwriting standards and weakening house price growth, many of those borrowers are behind on their loans, or in default.