Magazine article American Banker

Auditor's Exit Hobbles Flagstar

Magazine article American Banker

Auditor's Exit Hobbles Flagstar

Article excerpt

Flagstar Bancorp Inc. blamed lower second-quarter earnings and full-year guidance partly on its auditor's unexpected resignation, which delayed the formation of a mortgage investment subsidiary and the securitization of $500 million of home equity lines of credit.

Profits fell 33% from a year earlier, to $27.8 million, or 43 cents a share, the Troy, Mich., thrift company said Thursday. It had previously forcast eanings of 45 to 60 cents a share, and the average of analysts' estimates had been 44 cents.

Flagstar lowered its full-year guidance to $1.70 to $2 a share, from $1.90 to $2.50.

Grant Thornton LLP resigned as Flagstar's auditor June 13. On a conference call Thursday, executives of the thrift company said the auditor gave no reason for quitting.

But according to a June 15 filing with the Securities and Exchange Commission, the exit followed a disagreement over the effectiveness of Flagstar's internal controls in the first quarter.

In April, when announcing its first-quarter results, Flagstar said it would start a nonagency securitization program beginning with a home equity securitization in the second quarter. Chairman Thomas Hammond said Thursday that it expected to earn 10 cents a share from the deal.

Flagstar also said in April that it would be forming a mortgage investment subsidiary in the second quarter to invest in nonprime mortgages. It hoped to eventually spin the unit off and possibly convert it to a real estate investment trust.

It had estimated that the unit -- whose formation is now delayed until early next year -- could add 10 to 15 cents a share to earnings this year. …

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