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New Century Stock Plunges After Big Investor Quits Board

New Century Financial's stock fell sharply Thursday after activist hedge fund manager David Einhorn quit the company's board.

The latest decline comes two days after the subprime lender's stock fell 69% following disclosure of a federal criminal probe into securities trading and accounting.

Irvine, California-based New Century said Thursday its survival might depend on getting help from its own lenders.

"New Century's future is up to its lenders and potential suitors," said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. "David has a big stake in the company, but he may not be needed any more. New Century could better facilitate a sale if he's not there."

Einhorn is a principal at New York's Greenlight Capital, which owns a 6.3% stake in New Century, a Thursday filing with the U.S. Securities and Exchange Commission shows.

Joined Last March

The 3.49 million share stake as of Wednesday had fallen by about $142 million in value since Einhorn joined the board last March. Greenlight is New Century's second-largest shareholder, according to Thomson ShareWatch, and invests about $4 billion.

Einhorn declined further comment, according to Mary Beth Grover, an outside spokeswoman for Greenlight. The resignation letter was not immediately available. New Century spokeswoman Laura Oberhelman did not immediately return a call seeking comment.

In January, Einhorn demanded the ouster of management at business financing company Allied Capital Corp. in the wake of a probe that led to 19 people being charged with fraud, including a former executive at an Allied unit.

Einhorn joined New Century's board after dropping a proxy fight to oust three directors. Greenlight also won the right to double its then current New Century stake to 19.6%.

"Self-Inflicted Actions"

Before the resolution, Einhorn argued that New Century shares were depressed "due to a history of capital misallocation, market anticipation of future capital misallocation and a number of other self-inflicted actions."

In Thursday's filing, Greenlight said it had not sold New Century shares in the previous 60 days, a period in which the shares fell 83%.

Asked if Greenlight might bid for New Century, Fox-Pitt Kelton's Howlett said, "It's a possible scenario, but it's unlikely."

Einhorn sat on the 10-person board's finance committee and its public and community affairs committee, according to New Century's Web site.

According to ShareWatch, Los Angeles-based Hotchkis and Wiley Capital Management is New Century's largest shareholder, with a 7.1% stake. An outside spokesman did not immediately return a call seeking comment.