Downey Financial outlook cut to negative on declining loan portfolio - Moody's |
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Mon, 15 Oct 2007 08:09
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MUMBAI (Thomson Financial) - Moody's Investors Service cut the rating outlook on Downey Financial Corp and its thrift unit Downey Saving and Loan Association to negative from stable, citing a declining loan portfolio.The agency said this decline has lead to asset quality issues and financial and franchise concerns, which have weakened Downey's financial metrics.Moody's has a 'Baa2' issuer rating on Downey Financial and a bank financial strength rating of 'C-' on Downey Saving and Loan Association.Downey said the weak housing market will hit third-quarter results, resulting in the company taking about 82 mln usd of credit provisions, more than 8 times provisions for the first six months.Moody's does not consider this level of provisioning to be necessary in the future, but said higher credit costs are likely to be a drag on profitability into 2008 due to Downey's exposure to the weakening California residential real estate market.Also, Downey's held for investment portfolio fell by over 20 pct in the year to end-August, which hurt the profitability.The continued decline in the thrift's loan portfolio also raises franchise impairment concerns as Downey's most appropriate long-term product and origination channel strategies are unclear, Moody's further said.It however added that its concerns regarding these credit negatives are offset by Downey's 'extremely strong capital and liquidity position'.TFN.newsdesk@thomson.comapm/jroCOPYRIGHTCopyright Thomson Financial News Limited 2007. All rights reserved.The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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