Gerald J. Ford, the investor who had been close to rescuing troubled subprime lender Fremont General, has revealed a 6.8 percent stake in Orange County-based Downey Savings.
According to an SEC filing, Ford’s Hilltop Holdings Inc. had amassed 1.89 million shares of Downey Financial Corp. as of last Friday.
The filing also noted that Ford met with representatives of the Newport Beach-based savings and loan about long-term strategies, including a possible takeover bid.
“While Downey has not shown an inclination to sell, we believe the pressures on the California home market could provide an incentive for the company to find a partner,” wrote Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc.
Downey specializes in adjustable-rate mortgages, including the now infamous option-arms that allow borrowers to pay less than the actual interest rate each month.
Downey Financial, which operates about 200 banking branches and home loan centers, lost $23 million, or 84 cents a share during the third quarter, compared to net income of $55.6 million, or $1.99 per share in the third quarter of 2006.
Last month, Ford’s group pulled out of a similar deal that would have infused Fremont General with a much needed $80 million after favorable terms couldn’t be met.
Fremont General had previously been the nation’s fifth largest subprime lender, but recent market conditions have forced the lender to cut back many of its higher-risk mortgage lending operations.
Shares of Downey, which have fallen more than 50 percent this year thanks to rising defaults and slumping home prices, were up $4.36, or 14.54%, to $34.35 in afternoon trading.
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