Downey and Out

The FDIC better get ready. Downy Financial is next! They announced earnings today, and their stock dropped 29% to $1.97. I have cut and pasted the following AP article in order to comment better:

For the April to June period, the bank reported a loss of $218.9 million, or $7.86 per share, compared with a profit of $32.7 million, or $1.17 per share, in the year-ago period.

Downey has now lost $21.49/share over the last year.

Analysts polled by Thomson Financial, on average, were expecting a loss of $4.60 per share.

The analysts are still way behind the curve.

Results were weighed down by a $258.9 million provision for credit losses, up from $9.5 million a year ago.

Non-performing assets increased to $1.96 billion during the quarter, representing 15.5 percent of total assets, compared with 1.53 percent a year ago.

Obviously, $260 mil in additional loss reserves doesn't help when non-performing assets are increasing at a rate of $1.77 billion per year. I don't know what Downey's total loss reserves are, but they're not enough. Their stock is too low to raise money, their npl's are getting worse, and the collateral backing those loans is dropping daily.

Net interest income, or income generated from loans and deposits, fell 26 percent to $82.9 million, reflecting a decline in average interest-earning assets and the effective interest rate spread. The decline in interest rate spread is primarily due to a higher proportion of non-performing assets.

Their interest income is dropping even faster than non-performing loans.

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The short squeeze is over. The banks are all dropping again, like rocks down a cliff. I'm glad I stuck with my homebuilder shorts. RYL, until now an overperformer in the homebuilder world, posted humongous losses. Ford posted the biggest quarterly loss ever, $8.7 billion. The only thing up today is AMZN, which doubled profit in yesterday's after-market report. I'm going to have to get out of this one, as it seems that more and more people are learning that shipping is more efficient than a road trip to the mall. And I'm kicking myself on this one: Chipotle (CMG). Their profit jumped 23% and missed by a penny. The stocks been hammered, down $14.79 (17.65%). This is what happens to a growth stock that's growing at 23% when the P/E's over 30 in a recessionary environment. I was thinking about shorting this at the beginning of this year at $120+. DOH!