New Century Financial Corporation (OTC:NEWC) shares moved down $0.44, or 22%, to $1.56 after two of the company's major bank lenders took possession of loans previously used to secure their financing. The company disclosed in a
regulatory filing Thursday that it had agreed to transfer is outstanding loans with both Barclays Plc and Morgan Stanley. Many analysts interpreted this move by the banks as a last-second attempt to salvage at least some value in these loans by auctioning them off themselves. While the company refuses to comment on the situation, many analysts are surprised that the company has not already filed for bankruptcy.
New Century first disclosed that bank lenders were pulling their funding two weeks ago when they received notices of default from Barclays, Bank of America, Citigroup, Credit Suisse Group, Goldman Sachs and Morgan Stanley. The problems themselves first arose after firms that purchased subprime mortgage loans from these lenders became more aggressive in kicking back dud loans stemming from poor underwriting practices. These actions forced them to repurchase loans, which have severely impacted their ability to keep lines of credit open. Whether or not this will result in an official bankruptcy filing for New Century remains to be seen; however, many people believe there may be no other way out. NEWC stock, however, continues to trade at $1.56.
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