I remember in the early 1990s when the savings and loan crisis was raging. It turned out to be a classic case of investors "throwing the baby out with the bathwater" and dumping S&Ls indiscriminately. Alert value players sifted through the wreckage, scooped up some bargains, and made nice gains.
I wish I could say I was one of them -- but wasn't (sigh).
Reading Gregory Zuckerman's fine piece on New Century in The Wall Street Journal has me wondering how many bargains will eventually emerge among subprime lenders. Or could it get so bad that the stock prices of all lenders get slapped down -- and the key ends up being separating quality lenders from the rest?
No predictions here. Or at least not yet. Just something to keep our eye on.
Washington Mutual (WM) is a screaming baby. ;-)
Posted by: C. Maoxian | March 29, 2007 at 02:54 AM
The mono-line subprime lenders business model showed all its weakness during this crisis.
Basically once they face underwritting losses (due to poor underwriting standards this time but usually due to poor job market which hurts weak credit people first) the short term financing providers immediately turn off the spigots.
Only remedy to survive is to adopt iron super-safe underwriting rules. I think that's exactly what Delta Financial (DFC) has been doing during this credit bubble.
Almost 90% of their loans are fixed rate, loan to value is standing below 80%, exotic mortgages (option ARMs or similar) represents less than 1% of mortgages originated.
Apart this candidate I do not see any other subprime lender common equity with enough margin of safety.
Posted by: Vincent Di Carmine | March 29, 2007 at 04:00 AM
Report of KKR looking at BCE:
http://news.yahoo.com/s/nm/20070329/bs_nm/bce_buyout_report_dc_1
Posted by: ku4a | March 29, 2007 at 09:27 AM
Hi,
You might be interested in an article by James Altucher on the FT.com website earlier this week. He mentions some potential 'babies' in the sub prime / mortgage areas.
http://www.ft.com/cms/s/18023f74-dbe2-11db-9233-000b5df10621,dwp_uuid=d8e9ac2a-30dc-11da-ac1b-00000e2511c8.html
Thanks for a great blog btw...
Ger
Posted by: Ger Dineen | March 29, 2007 at 09:52 AM
Hi,
I think DFC has the right following as far as shareholders, value investors such as Monish have made big purchases. I haven't piggybacked, not because I don't believe in DFC, but more so because I don't know what the MOS is. Btw, someone on the DFC-yahoo message board posted a link to DFC hiring in California.
Posted by: Shahin Khezri | March 29, 2007 at 12:47 PM
CM: WaMu is a great run company, from what I've always heard.
Vincent: I'll check out DFC. Thanks.
ku4a: Thanks for the link. Haven't been near my computer all day.
Ger: Thanks for the Altucher link. I read FT.com but had missed that. I appreciate your comments about the blog.
Shahin: Good points and I'll keep them in mind when reviewing DFC.
Posted by: John | March 30, 2007 at 12:24 AM