Magazine article American Banker

Securitizations Said to Spur Loss at Calif. Bank

Magazine article American Banker

Securitizations Said to Spur Loss at Calif. Bank

Article excerpt

Dogged by troubles in its loan securitization portfolio, Community West Bancshares in Goleta, Calif., is expected to report a full-year loss of about $3.8 million, or 65 cents per share, sources close to the company said.

The market -- spooked ever since Community West disclosed its regulatory troubles last month -- has already punished the company's stock, which is down nearly 30% in the last 10 days. It set a 52-week low of $7.125 a share last Tuesday, and the shares were below that, at $6.25, in midday trading Thursday.

Community West chairman John Markel acknowledged that the $246 million-asset company would report a net loss for 1999 but declined to specify it. He said a formal announcement would be made today.

Sources said the loss stems from the company's plan to write off roughly $8 million in connection with two loan securitizations. Community West had retained on its books about $20 million of a $203 million securitization it completed in the fourth quarter of 1998 and the second quarter of this year. The company was forced to mark down a portion of these so-called "residual assets" after regulators questioned its default rate.

The bad news would end a profitable run at Community West. It had originally expected to report a 1999 profit of about $5.1 million, or 85 cents per share -- an 82% jump from the year before.

Community West, parent of Goleta National Bank, is one of several small banking companies under regulatory scrutiny of its loan securitization practices since the failure of First National Bank of Keystone in West Virginia. This month a federal interagency report stated that the loan securitization market -- with its risk management principles and bewildering accounting rules -- has become too sophisticated for many small banks.

The California company's troubles began with a surprise telephone call from the Office of the Comptroller of the Currency in October. …

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