It was an introspective, subdued Robert Grosser who answered questions Wednesday about Cityscape Financial Corp.
The 40-year-old chief executive had put his company on the block the night before after a two-year roller coaster ride that ultimately reduced the subprime mortgage lender from Wall Street darling to whipping boy.
"My belief is that the truth and the value of the enterprise will come through," he said quietly. Mr. Grosser was speaking via telephone from London, where he was negotiating with regulators over charges against Cityscape.
Eighteen months ago, no one seemed to question the value of Mr. Grosser's enterprise, based in Elmsford, N.Y. Earnings had increased 1,500% in 12 months, the stock was soaring, and the company seemed to be pioneering a kind of lending.
"We're the poster boys of the home equity industry," vice president Robert Stata told American Banker last July. Mr. Stata has since left for a credit card company.
Banks have piled into the subprime mortgage market; investors have clamored for securitized pools of subprime mortgage loans; bond insurers have haggled to wrap these loans; and investment banks have helped subprime mortgage lenders raise billions of dollars in capital.
During the past year, however, Cityscape has been hit by downgradings, bad press, allegations that its consultant had criminal associations, and a regulatory crackdown in the United Kingdom on high-rate lenders. Throughout-and despite a stock price that has slid steadily from a high of more than $35-Mr. Grosser has insisted vehemently that Cityscape was not for sale.
Then on Monday the stock price slipped below $9, triggering recalls of the loans that investment banks had made to Cityscape shareholders and a selloff of the company's shares.
By Tuesday afternoon, Cityscape's stock was trading as low as $3 a share. Mr. Grosser, it seems, had no options left.
Tuesday evening, Cityscape formally announced what had been rumored for days: It had retained Bear, Stearns & Co. to help it "explore strategic alternatives"-often taken on Wall Street to mean, "We're for sale."
In addition, the company said that its third-quarter earnings would be "significantly under" analysts' estimates and that it was retaining an outside servicer to help manage its growing pool of loans delinquent more than 90 days. News of the outside servicer confirmed a fear that analysts have expressed for months, that the company's loan pools have grown too fast for it to handle.
Cityscape's problems have not yet spread within the subprime sector, and most analysts don't expect them to do so.
"Cityscape is getting beat up, and other (subprime stocks) are going up," said Jeffrey Evanson of Piper Jaffray Inc. "This shows a maturity among the buy-and-sell side involved in finance companies."
Money Store Inc. reported better-than-expected earnings Wednesday, buoying hopes that the problems in subprime are confined to a few companies.
For Cityscape, however, the story seems to be over. Competing companies, eyeing the wreckage, said it is unlikely that the lender would be kept whole when it is sold.
"No one wants it in its totality," one said. "The U.K. franchise still has a lot of value-they have exclusive agreements with a lot of brokers there."
Cityscape makes most of its loans through brokers-an arrangement that makes the company hard to value, competitors said.
In addition, there is the issue of the company's debt. Cityscape has raised capital through private stock issuance in a transaction that another lender calls "death spiral preferred."
CIBC Wood Gundy arranged most of the company's funding, and recently Bear Stearns gave Cityscape a $300 million warehouse line.
The street's overeagerness may have contributed to some of Cityscapes problems, said the chief executive of another subprime mortgage company. "In 1996, people only wanted to hear about growth, not credit quality," he said. "It's a shame."
But Mr. Grosser said he is still committed to the subprime mortgage industry.
"Absolutely," he said, half joking, "if they'll have me."