Man... Friday just can get here soon enough.
CR posted about the downgrade at Downey, and here is the full article for those who don't want to register for the S&Psite...
NEW YORK (Standard & Poor's) Aug. 13, 2008--Standard & Poor's Ratings Services
said today that it lowered its counterparty credit rating on Downey Financial
Corp. (Downey) to 'B+/C' from 'BB+/B'. The rating will remain on CreditWatch
Negative where it was originally placed on June 3, 2008.
This action was taken in response to our concerns that Downey's weakened
financial profile has left it exposed to potential funding and liquidity
problems. "Although Downey still had approximately $2.4 billion in available
liquidity between its remaining lines of credit and cash on the balance sheet,
deposit outflows in July and the recent drawing down of most of its FHLB lines
have reduced Downey's liquidity and available lines of credit. This, coupled
with Downey's already weakened financial profile and asset quality problems,
has reduced the company's flexibility and greatly weakened its franchise.
Downey has since reversed 40% of its July deposit outflows," said Standard &
Poor's credit analyst Robert B. Hoban, Jr. Downey has since reversed 40% of
its July deposit outflows. We are concerned that depositors in Downey's
footprint have a heightened sensitivity to potential bank failures after
recent experience and publicity, which increases the possibility that Downey
could experience further material deposit outflows. If that were to happen, it
could overwhelm Downey's liquidity and/or trigger an adverse regulatory
action, and the rating would have to be lowered an additional several notches.
California's deteriorating housing market has had a substantial negative
effect on Downey's credit performance, financial profile, and capitalization.
Adjusted nonperforming assets (NPAs) at the end of June were $1.4 billion
(11.16% of assets), an increase of 45% from the previous quarter's already
very high level. Downey's concentration in California and its level of
exposure to the more at-risk 2006-2007 vintage mortgages is likely to result
in continued asset-quality problems and heightened loss severity. Although
Downey's capital and reserve levels remain good, further NPA growth may
overwhelm the thrift's ability to overcome its asset-quality problems. In
addition, another loss on the scale of second-quarter 2008 is likely to
threaten the thrift's regulatory "well-capitalized" designation.
Resolution of the CreditWatch will be based on a close monitoring of
Downey's liquidity, capitalization, and any regulatory action.
