The subprime carnage continued on Wall Street last week and it didn’t just involve big players such as Merrill Lynch & Co. and Citigroup Inc., which booked a combined $16.7 billion in writedowns related to the credit crunch.
The meltdown hit local banks hard as well, including mortgage lender IndyMac Bancorp Inc., which announced it will cut its work force by 24 percent, or 2,403 employees, in a bid to stay solvent. The announcement came after IndyMac allowed 1,600 workers to leave last year through voluntary resignations. The bank plans to take a pre-tax charge of about $25 million related to severance and other expenses in the first quarter.
“This action is clearly painful, but it is necessary in our drive to return IndyMac to profitability soon,” wrote Chief Executive Mike Perry in a memo to employees.
Then there were PFF Bancorp and FirstFed Financial Corp., which last week announced bigger-than-expected losses due to bad loans.
FirstFed, the Santa Monica-based parent company of First Federal Bank of California, said it expects fiscal third quarter loan write-offs to reach about $34 million, the same amount it wrote off in the second quarter. It plans to raise its bad-loan provision fivefold because of a spike in delinquencies, and now expects to set aside as much as $23 million for the fourth quarter. FirstFed shed 11 percent last week.
Meanwhile, Rancho Cucamonga-based PFF said it expects to record a $55 million charge in its fiscal third quarter related to loan and lease losses. The news prompted a 23 percent stock slide for the week.
Analyst Joseph Gladue of B. Riley & Co. downgraded PPF to “sell” saying “investors would be better served avoiding this stock due to the risk of even further credit deterioration.” However, Friedman, Billings, Ramsey & Co.’s David Rochester offered some hope to the struggling bank.
Rochester said that while he “remains cautious” on PFF as it “contends with a challenging credit environment” this year, he said he expects PFF’s regional banking services to pull through.
Gladue’s optimism was shared by PFF Chief Executive Kevin McCarthy, who said that while things won’t get better until the housing market bottoms out, he thinks the bad loans are contained to developers building only in certain Inland Empire communities.
“We’re a publicly held company, and sometimes people overreact. I do think the strength of our local market will help us bounce back more quickly,” he said.
