The homebuilding industry has been raising the roof on Wall Street. With the scent of a housing rally in the air, stock prices of several homebuilders doubled in the last six months, including little Ryland Group of Calabasas.
Alas, not so much at L.A.’s big homebuilder, KB Home of Westwood. Its stock in recent weeks sunk back toward the basement. It reported dismal earnings a couple of Fridays ago – a per-share loss of 59 cents when analysts were expecting 24 cents.
By contrast, Lennar and Toll Bros., two other big homebuilders, on Tuesday reported better earnings. In fact, Toll Bros.’ CEO said on CNBC that day that this is the “best spring in five years” and new orders are up significantly.
Later last week, the news didn’t get any better at KB Home. Standard & Poor’s on Wednesday trimmed the company’s credit rating and said its outlook was negative – meaning the entire year may be a tough one for KB Home. Also, a recent report said 46 percent of KB Home’s shares had been shorted in the first half of March, the third most of all companies in the country.
The main problem stems from the sudden announcement in January that KB Home’s preferred mortgage partner, MetLife Home Loans, was shutting down its retail mortgage operation. And the new mortgage providers are stricter. That means more customers – KB Home sells heavily to first-time and move-up buyers – are failing to close on their would-be purchases. Cancellations are up for KB Home. Investors seem worried that if KB Home can’t find a compliant mortgage lender, more troubles may ensue.
Now, KB Home, which delivered 5,800 houses last year, is still bigger than Ryland, which delivered 3,400. And KB Home’s revenues are greater.
But if you look at the value of the companies’ stock, the market cap (it’s on page 27), you’ll see KB Home’s has sunk to $716 million while Ryland’s has risen to $912 million.
By that measure, Ryland is now the biggest homebuilder in Los Angeles.
After a years-long coma, beleaguered homebuilders have finally come to. In fact, they’ve jumped off the gurneys and have started sprinting. It’s a little alarming to see L.A.’s “big” homebuilder stumble so badly.
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If you saw last week’s issue of the Business Journal, you probably noticed that we gave our Business Person of the Year award to Dominic Ng, the chief of East West Bancorp in Pasadena.
One reason is the remarkable rise of the bank, which specializes in helping companies do business between the United States and Asia, particularly China. When he took over 20 years ago, East West had assets of $600 million. Now it has $22 billion. That makes it the second largest bank company headquartered in Los Angeles County. If measured by market cap, it is now the largest in the county. And it has become the largest Asian-American bank in the country.
In remarks he made while receiving the award during a luncheon Thursday at the Millennium Biltmore hotel downtown, Ng said he was even more excited about the next 20 years at East West. The reason: The real possibility that the relationship between the United States and China – the world’s two biggest economies – will deepen.
He said he imagines a relationship in which the two countries work together and “help lessen political instability, whether in North Korea or Iran.”
And Ng imagines a relationship in which, for example, China can help American students become better at math, and the United States can help China make the transition to a more consumer-driven economy.
A better relationship would help East West, of course, but it also would help Los Angeles. After all, this is the port city, the gateway city, between East and West.
Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].
