Downey Financial Corp. is hanging on, but things could hardly be described as normal at the Newport Beach, CA, institution. In July its deposits slid $507 million to $9.4 billion, “with the majority of the decline related to uninsured deposit amounts,” according to a statement. At the same time, borrowing jumped $1.3 billion. The money went to cover the lost deposits and to “increase cash and short-term liquid assets to meet potential liquidity needs. Deposit flows have stabilized, and around 45 percent of the deposits drawn down last month have been rebuilt; the “bulk of the inflow is in certificates of deposit with 6 to 16 months duration.”
Downey, with $12.6 billion in assets, is being closely monitored by the Office of Thrift Supervision: it can’t issue dividends, “issue new debt or renew existing debt without prior non-objection of the OTS,” according to a recent SEC filing. “In response to the challenges facing Downey in the current operating environment, Downey has formed a special Board committee to explore a range of strategic alternatives, including the raising of additional capital to levels deemed appropriate by the Board under the circumstances.”
