Thursday, March 1, 2007

New Century (NEW) Delays

Man oh Manishevitz. Just when you think it can't get any stranger in the world of subprime, a tersely worded statement released late this evening from New Century Mortgage (NEW) says the company will delay the filing of its annual report with the Securities and Exchange Commission. California based NEW, one of the largest subprime lenders, did not give a time table for when it would file its 10k. It was back on February 7th that New Century surprised investors by delaying the release of its 4th quarter results and that earnings for the prior three quarters would have to be revised lower. Read the New Century release here.

Again I say WRT to New Century, this whole issue of them having to correct errors relating to how it incorrectly applied Statement of Financial Accounting Standards No. 140 - Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities - stinks to high heaven. After scandals like Enron, how is that New Century and its accountants could fail to include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses?!? Coincident with the delayed annual report, these accounting issues don't engender a great deal of confidence in NEW's situation.

Given that NEW has yet to be "revalued" the way NFI has, NEW is looking expensive. As Bear Stearns noted in its oddly timed upgrade on Thursday, NEW could find itself out of money by the end of the year. Total debt is also an issue. According to recent data, NFI has $4 bln in debt, while NEW which is a company with a market cap just a little more than 3X larger than NFI, debt totals more than $22 bln. NEW's value is also based on a forward p/e of 15x which no doubt is going go come down to negative once the numbers come out. It is just hard to imagine the stock staying at $15 and not challenging $10 before long. NEW book value looks good for the longs now at .45, but there's no way that book value is accurate.

But you've got to hand it to them... they are classy. Nothing like releasing the NEW news at just before MIDNIGHT. You can't make this stuff up. In this internet age, the NEW news will be splashed across the web by tomorrow morning, but it's doubtful it will make it to column 2 of the Journal for the 5 a.m. movers and shakers crowd on Wall Street. But those shakers will still know about it.

One other note. Below is a 2 yr chart that includes a standard bar chart of NEW in the main, larger box. There is also a NEW to NFI ratio in the upper box. Throughout the recent subprime blowup saga there have been many comparisons to the plight to NEW vs Novastar (NFI). What's intriguing about the upper chart is that NEW finds itself in an unusual situation. It is presently trading at more than 2x the PRICE of NFI shares. The general mean before the recent fireworks has been about 1.3x. That would imply a $10/sh NEW price, though NEW has been able to trade to near parity with NFI. Just something to ponder.


Mike Truong said...

Yeah NEW is just unbelievable. I actually had dinner with one of their VP a long time ago. I think he left to form Acoustic. Wonder if they would actually file anything in the next 5 to 15 days or will we get more and more delays? Have to wonder if the higher volume the last few days are related to more investment clients dumping their shares. I planned to roll my profits from the Mar puts into some more May puts also. I think Bear Stearns is quiter generous in their assessment of buying out NEW at 10~11 dollars/share which is about 500~600 million dollars? I don't think anyone will step up to the plate and buy NEW for that. Maybe 50~100 million if that.


Lauriston said...

NEW now joins FMT (mortgage lender) in postponing reporting... FMT took a 24% haircut day before yesterday for that reason...