Cityscape Financial Corp. has quit the subprime auto business even before getting started.
On Monday the Elmsford, N.Y., subprime mortgage lender sold its stake in a start-up subprime auto lender that has yet to book any significant loan volume.
Cityscape paid $65,000 last June 27 for a 55% stake in City Auto Resource Services, a West Palm Beach, Fla., subprime car lender, said Robert Grosser, chief executive of Cityscape.
City Auto bought back the stake Monday for $500,000, Mr. Grosser said.
City Auto went public last June 10 through a merger with Camino Resources, an entity with a stock listing but no tangible assets. The stock rose to a high of $13.25 on Nov. 5. On Tuesday, it closed at $3.75.
Earlier Monday, before the buyback, Moody's Investors Service downgraded Cityscape's subordinated debt from B1 to B2, saying that the company's leverage was dangerously high and that it had steep delinquency rates in some loan pools.
The company's 1995-1 pool of loans is particularly alarming, said Tom Foley, a senior analyst at Moody's.
When analyzed on a static pool, delinquencies are above 20%, he said.
That pool was the smallest of Cityscape's securitizations, but may signal bigger problems, Mr. Foley said.
"I don't know where they (delinquencies) will level off," he said. "And, I don't know if it (Cityscape) can handle them.
Cityscape's stock fell almost 17% on the news, to close on Monday at $12.50. By Tuesday's close it had rebounded to $13.50.
On Tuesday, Cityscape announced the appointment of Peter S. Kucma to the position of senior vice president and chief operating officer, effective May 1.
The newly created position is part of a strategy to "embellish senior management ranks," said Mr. Grosser. "As we grow we need to bring on more solid senior people," he said.
Mr. Kucma was vice president and general manager at GE Home Equity, a division of GE Capital Mortgage Services Inc., Cherry Hill, N.J. He will be responsible for overseeing daily domestic operations.