Investors have unfairly tagged Amresco Inc. as just a home equity lender, according to the president of the Dallas company.
In mid-November, it said it would post an $85 million to $90 million fourth-quarter loss, in part because of losses on sales from its home equity and commercial mortgage portfolios.
The company closed its home equity securitization unit, Amresco Residential Credit Corp., in November and said last week it would lay off about 10% of its work force.
Shares of Amresco that had sold for $30 during a February offering traded as low as $2.01325 in October and are now hovering at about $6.
But Amresco president and chief operating officer Robert Adair said last week that investors who view the company as a peer of Southern Pacific and United Companies-two home equity lenders that have suffered massive losses and, in the case of Southern Pacific, filed for bankruptcy-are missing the point. Home equity lending, he said, supplies "at most one-third of our earnings."
Amresco was formed as a unit of NationsBank Corp. in the early 1990s to acquire troubled assets from the Resolution Trust Corp., the agency formed to clean up the savings and loan debacle.
But since then the company has branched out into acquiring bank assets from the Federal Deposit Insurance Corp., Mr. Adair said, adding that distressed-asset management remains a mainstay of its business.
Other home equity lenders were required to take massive charges when competition increased in the industry, forcing them to adjust accounting for unanticipated prepayments. The losses at Amresco were the result of unforeseen market conditions, combined with a bad decision, Mr. Adair said.
"We had the misfortune, and perhaps the mismanagement, to accumulate excessive amounts of mortgages on our balance sheet as we went into September ... just as the bond market collapsed," Mr. Adair said.
The bond market's collapse destroyed profit margins for companies that securitize. "The timing was awful," Mr. Adair said. Amresco was forced to sell the loan portfolios for much less profit than anticipated.
The company's announcement that it would take a loss in 1998 and report lower-than-expected profits in 1999 came as a blow to its followers.
"They said they were building a fortress-like balance sheet, and instead it was just a castle in the sky," complained one analyst, who did not want to be named. Amresco was "great at growing the business quickly; they just weren't very good at risk management," he said.
Mr. Adair does not fault his critics. "I can't say that I blame them," he said. Amresco executives have spent the past few weeks meeting with all the banks backing the company's main syndicated line, with rating agencies, and with analysts in an attempt to explain the company's direction.
So far, observers are "waiting to see performance, and I think that's fair," Mr. Adair said. Amresco is asking for a "chance to prove that what happened this fall is an aberration," he said.
Now Amresco is emphasizing its other business units. The two lines of business that involve mortgage lending were "one-quarter of our operating earnings in 1998. The other 76% are virtually intact, and that is what has kept Amresco a viable, ongoing company," he said.
Amresco will be emphasizing its longtime core competency, working out distressed loans, Mr. Adair continued. The company buys and resolves delinquent commercial real estate and small-business loans, a business that has been fueled in part by the recent spate of mergers in financial services. Once a bank has bought another institution, it will often "quickly dispose of nonperforming assets" it picks up in the deal.
The company will also be focusing on its other business lines, which run the gamut from financing Jiffy Lube franchises to underwriting multifamily loans for Fannie Mae and Freddie Mac.
"For all these units, 1998 was a very good year," Mr. Adair said. "Unfortunately it was totally masked by that debacle in our securitization business."