Downey has loss, replaces CEO, seeks ‘alternatives’

Downey Financial Corp., the Newport Beach-based owner of the troubled Downey Savings & Loan chain, swung to a huge loss and announced a major shake-up in its management team.

Downey said it was replacing its chief executive – the fourth in four years – and Maurice McAlister, one of Downey’s founders and its largest shareholder, resigned as chairman of its board. McAlister, who has helped run the company since 1957, has long been considered the company’s biggest impediment to new ownership, and financial experts say his departure increases the likelihood that the company would be sold.

“He’s been the only reason they haven’t been sold,” said Joe Garrett, a banking advisor with Garrett, Watts & Co. in Berkeley. “It’s human nature. I’ve seen it in a lot of boardrooms. This has been my baby, my family, something I’ve nurtured for 50 years.”

The company also announced today that it would be looking for “strategic alternatives” to help the company remain viable.

Like its bigger competitors, Countrywide Financial Corp. and IndyMac Bank, Downey, a regional bank with 174 locations in California and Arizona, has been suffering from the fallout in adjustable-rate mortgages, loans that allowed people to make small payments for a few years before ratcheting up to amounts that many could not afford. The amount of loans on Downey’s books that were in danger of not being repaid nearly doubled over the last six months to 15.5% of its total assets.

Downey had a net loss of $218.9 million in the second quarter, or $7.86 per share, making it the fourth straight quarter of losses. In the second quarter of 2007, Downey earned $32.7 million, or $1.17 per share.

The company’s stock sank on the news, falling 29% to $2.02.

 william.heisel@latimes.com