SUBPRIME ROUT
The stock sell-off in the subprime mortgage sector turned into a full-fledged contagion yesterday, as the pending collapse of mortgage originators drove the Dow Jones industrial average down more than 242 points.
Few stocks were left unscathed as reports of spiking mortgage delinquencies across the lending sector sparked renewed fears of recession.
The Dow fell 242.66 points to close at 12,075.96 – the second-worst decline of the year. The Nasdaq composite index tumbled 51.72 points to close at 2,350.57. The S&P 500 sank 28.65 points to 1377.95.
Shares of all 88 financial companies in the S&P 500 index took a hit, erasing $13 billion in value and led by mortgage powerhouses Lehman Brothers and Bear Stearns.
The trouble didn’t stop there. Weaker-than-expected retail sales also had a hand in depressing stock prices, as 28 of the 29 names in the S&P retail index posted declines, reviving worries that consumers could be pulling back on the spending that has helped prop up the economy.
The subprime mortgage funeral march is proving very damaging to the bottom lines of some of the biggest investors in the financial world.
Accredited Home Lenders yesterday announced that it will explore “various strategic options” after lenders demanded $190 million to cover potential losses from bad loans.
The news sent shares in San Diego-based Accredited tumbling over 65 percent to $3.97. Over the past month, Accredited’s shares have lost more than $21 in value.
The decline has cost high-profile hedge fund Farallon Capital Management dearly. The fund bought 1.97 million shares in Accredited when the stock was between $25 and $30 late last year. A spokeswoman for the fund declined comment.
Meanwhile, New Century Financial, which had been at the center of the subprime mortgage meltdown story, disclosed that its lenders pulled their credit lines, and many on Wall Street are expecting a bankruptcy filing within days. Adding insult to injury: the NYSE delisted its stock yesterday.
David Einhorn, a high-profile value investor and short-seller who runs $4.7 billion Greenlight Capital, has seen his 6.3 percent stake cause about $170 million worth of heartache.
Another victim was renowned financial stock analyst Tom Brown at Second Curve Capital hedge fund.
His fund’s primary portfolio is down nearly 21 percent year to date and things are getting worse: its core holdings are New Century, Accredited and CompuCredit, a subprime credit card issuer whose stock has likewise been hammered.
In fact, Second Curve has 8.5 percent and 9.5 percent stakes, respectively, in Accredited and CompuCredit.
“You have to separate the performance of the stock price from the performance of the company,” Brown told The Post.
He added that he had faith that CompuCredit “was a great company” and that his fund’s investors “have seen this movie before” and have not issued redemption notices.