Shares in Downey Financial Corp. gave back some recent gains on Thursday after analysts raised questions about the bank's credit quality and a ratings agency threatened to downgrade the company.
The Newport Beach, Calif.-based bank reported a $108.8 million loss for the fourth quarter on Wednesday. The bank, which runs 168 branches, mostly in California, set aside $218.2 million to cover bad loans.
A slumping housing market in California is strapping homeowners and pushing more borrowers into delinquency, the company said. With home prices slipping, the value of collateral securing the bank's more than $11 billion loan portfolio is dwindling.
Friedman Billings Ramsey analyst Paul Miller Jr. wrote in a client note it is tough to figure out how much Downey Financial is going to lose as credit markets deteriorate. It may take as long as a year-and-a-half for credit to stabilize, Miller said. He rates the company "Underperform."
Still, Downey Financial's stock spiked Wednesday amid a broad-based market rally. On Thursday, the stock slipped $1.40, or 4.7 percent, to $28.13. The shares are still up about 8 percent since the company reported the loss.
Moody's Investors Service said Thursday it is considering cutting its rating on Downey Financial's credit. With a high concentration in California _ which has been hit particularly hard by the housing slowdown _ Moody's will monitor how many bad loans the bank has to write off.
"The deterioration in the California real estate market could be substantial," Moody's said, and it is feasible the bank could lose money this year.
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