New Century probe deepens
New Century probe deepens
By Ben White and Michael Mackenzie in New York and Eoin Callan in Washington
Published: March 12 2007 15:21 | Last updated: March 13 2007 00:47
Copyright The Financial Times Limited 2007
New Century Financial, the US subprime lender scrambling to avoid bankruptcy, hit further troubles on Tuesday as it revealed that it was facing a preliminary investigation by the Securities and Exchange Commission and that it had received a grand jury subpoena from the Department of Justice.
The struggling backer of high-risk mortgages revealed that it was under criminal investigation by the US Attorney’s Office in the Central District of California at the end of February. It had already admitted that the SEC had asked for a meeting.
The US Attorney is examining trading in New Century’s securities and accounting errors in how much it set aside for loan losses.
The financial regulator is ”conducting a preliminary investigation involving the company and requesting production of certain documents,” New Century said in a regulatory filing.
“The staff of the SEC had also previously requested a meeting with the company to discuss the events leading up to the company’s previous announcement of the need to restate certain of its historical financial statements,’’ it said. ”The company intends to cooperate with the requests of the SEC.”
Trading was suspended in New Century shares on Monday, sparking fresh fears about whether turmoil in the sector could spread and damp US economic growth.
The halt, ordered by the New York Stock Exchange, came after New Century said its banks had either cut off credit or signalled their intention to do so, increasing the likelihood of an imminent bankruptcy filing or asset liquidation.
The rapid decline of New Century, the latest problem at US subprime lenders, raised concerns that problems could spread in the $8,000bn mortgage industry and to other parts of the capital markets.
Shares in Countrywide Financial, the fourth-largest US subprime lender, fell almost 3 per cent to $35.14 after the company said foreclosures hit a five-year high of 0.70 per cent in February and that turmoil in the subprime market could hurt earnings.
Market participants were also braced for the possibility that if New Century collapsed it could lead to broad investigations into practices across the subprime lending market.
Some economists also fear that the collapse in subprime loans could trigger wider house price falls.
In a filing with the Securities and Exchange Commission on Monday, New Century said lenders including Bank of America, Barclays, Citigroup, Credit Suisse, Goldman Sachs and Morgan Stanley had issued letters saying the company was in default.
New Century also said its bankers had demanded that it accelerate its obligation to buy back outstanding mortgage loans financed under the lending arrangements.
New Century said if its bankers demanded accelerated repurchase of all outstanding mortgages, it would cost the company $8.4bn, which it does not have.
That could lead the lenders to force a liquidation of New Century’s mortgage portfolio. New Century said such a liquidation might not generate enough capital to meet the banks’ demands.
Disclosure of the default letters on Monday came after Morgan Stanley last week agreed to extend $265m in fresh financing to New Century and take over a $710m credit facility from Citigroup.
In its disclosure, New Century said it had a $2.5bn repurchase obligation to Morgan Stanley. The company added that one of its lenders has said it “may be willing to continue providing limited financing under its existing agreements” but that such financing might be eliminated at any time.
Additional reporting by Richard Beales in New York
By Ben White and Michael Mackenzie in New York and Eoin Callan in Washington
Published: March 12 2007 15:21 | Last updated: March 13 2007 00:47
Copyright The Financial Times Limited 2007
New Century Financial, the US subprime lender scrambling to avoid bankruptcy, hit further troubles on Tuesday as it revealed that it was facing a preliminary investigation by the Securities and Exchange Commission and that it had received a grand jury subpoena from the Department of Justice.
The struggling backer of high-risk mortgages revealed that it was under criminal investigation by the US Attorney’s Office in the Central District of California at the end of February. It had already admitted that the SEC had asked for a meeting.
The US Attorney is examining trading in New Century’s securities and accounting errors in how much it set aside for loan losses.
The financial regulator is ”conducting a preliminary investigation involving the company and requesting production of certain documents,” New Century said in a regulatory filing.
“The staff of the SEC had also previously requested a meeting with the company to discuss the events leading up to the company’s previous announcement of the need to restate certain of its historical financial statements,’’ it said. ”The company intends to cooperate with the requests of the SEC.”
Trading was suspended in New Century shares on Monday, sparking fresh fears about whether turmoil in the sector could spread and damp US economic growth.
The halt, ordered by the New York Stock Exchange, came after New Century said its banks had either cut off credit or signalled their intention to do so, increasing the likelihood of an imminent bankruptcy filing or asset liquidation.
The rapid decline of New Century, the latest problem at US subprime lenders, raised concerns that problems could spread in the $8,000bn mortgage industry and to other parts of the capital markets.
Shares in Countrywide Financial, the fourth-largest US subprime lender, fell almost 3 per cent to $35.14 after the company said foreclosures hit a five-year high of 0.70 per cent in February and that turmoil in the subprime market could hurt earnings.
Market participants were also braced for the possibility that if New Century collapsed it could lead to broad investigations into practices across the subprime lending market.
Some economists also fear that the collapse in subprime loans could trigger wider house price falls.
In a filing with the Securities and Exchange Commission on Monday, New Century said lenders including Bank of America, Barclays, Citigroup, Credit Suisse, Goldman Sachs and Morgan Stanley had issued letters saying the company was in default.
New Century also said its bankers had demanded that it accelerate its obligation to buy back outstanding mortgage loans financed under the lending arrangements.
New Century said if its bankers demanded accelerated repurchase of all outstanding mortgages, it would cost the company $8.4bn, which it does not have.
That could lead the lenders to force a liquidation of New Century’s mortgage portfolio. New Century said such a liquidation might not generate enough capital to meet the banks’ demands.
Disclosure of the default letters on Monday came after Morgan Stanley last week agreed to extend $265m in fresh financing to New Century and take over a $710m credit facility from Citigroup.
In its disclosure, New Century said it had a $2.5bn repurchase obligation to Morgan Stanley. The company added that one of its lenders has said it “may be willing to continue providing limited financing under its existing agreements” but that such financing might be eliminated at any time.
Additional reporting by Richard Beales in New York
posted by Carlos T Mock at 10:49 AM
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