Distressed asset specialist Wilshire Financial Services Group reported a $119 million net loss for the quarter ended Sept. 30, making it the latest in a long line of finance companies to take massive hits this year.
The loss stemmed mainly from a $104.5 million charge the company was required to take to revalue its securities and loans because of "adverse market conditions," Wilshire said.
For the same period in 1997, Wilshire reported net income of $7.1 million.
"The company has been significantly and negatively impacted by various market factors," said Andrew A. Wiederhorn, chief executive of the Portland, Ore.-based company. "These factors resulted in a dramatic reduction in market valuations and liquidity for certain of the company's mortgage-backed securities and loans, as well as a reduced availability of borrowings for those assets, thereby significantly reducing the company's liquidity."
Consequently, Wilshire has been forced to sell assets to meet equity calls by lenders, primarily by an "affiliate of Salomon Smith Barney," the company said. Wilshire received much lower prices for these assets than the value it had assigned them on its books.
"Management believes that had the company not been forced to sell these assets, but rather held these assets until market conditions stabilized, the company's losses would have been far less severe," a Wilshire press release said.
Earlier this year, subprime lender Southern Pacific Financial Corp., Lake Oswego, Ore., was forced into bankruptcy because of equity calls from lenders, including Wilshire.
Several other banks and finance companies were forced to declare massive losses when mortgage-backed securities did not perform as expected.
Wilshire is undergoing a capital restructuring, which includes exchanging common stock for debt and offering stockholders new, highly deleted shares. Wilshire has also cut out its retail residential and manufactured housing originations and will be reducing its work force by 19%.
As part of its effort to focus on the commercial mortgage origination segment, Wilshire purchased George Elkins Mortgage Co., through its subsidiary First Bank of Beverly Hills FSB, in October.