Mego Mortgage Corp. last week became the latest subprime lender to suffer from the departure of a momentum investor.
The Atlanta-based lender's stock fell to a 52-week low Wednesday after Putnam Investments sold more than 300,000 shares.
The sale was not based on any problems with Mego's business, analysts say. Putnam "just didn't want to be in the sector," said Steven Eisman, analyst at Oppenheimer & Co., New York. Putnam invested in many subprime lenders' initial public offerings and has reportedly been selling off most of its stock in the sector.
The impact on Mego's stock was magnified because it is so thinly traded. Mego's float, or the number of shares available to the public, is only two million, so the price swings more violently when shares are traded.
Mego's stock traded at $8 a share on heavy trading midday Wednesday, down from Tuesday's close of $10. Volume for the day was nearly 2.9 million shares, versus a daily average of 19,000. Shares ended the week at $9.25.
Stocks of nonconventional mortgage lenders had been hot. But the momentum investors who had flocked into the sector left just as quickly, when the collapse of several subprime auto lenders triggered an across-the- board subprime selloff. But analysts say the sector should see a rebound soon.
"We're at the bottom," Mr. Eisman said.
Most investors who were momentum driven have gotten out, added Jeffrey S. Moore, president and chief operating officer of Mego.
Analysts say further selloffs are unlikely to have such a dramatic effect on other companies.
"You really can't generalize from this," said an analyst who specializes in the sector. "Basically, it's related to the small float of the company, not representative of the group."
And Wall Street investors are still eagerly offering capital for Mego's securitizations, the analyst said.
The company, a high-loan-to-value specialist, is due to securitize a pool of loans this week, its fifth in 18 months, he said.
In fact, investors have been "even more aggressively" courting subprime mortgage lenders for loan product to securitize in recent weeks, Mr. Moore said. "They're even offering ancillary products. ... We're very pleased with what has been presented."
Competitors have hinted that Putnam's bargain-basement selloff indicates that Mego may be capital-strapped, an accusation Mr. Moore says is completely off base. "By Feb. 28 we had $64 million. ... Now we're up to $80 million, and we only have $11 million borrowed against it." u
