Delta Financial, perhaps the most conservative of the subprime originators -- and until recently, one of the few still churning out profits -- said today that it lost $39.6 million, or $1.70 per diluted share, during the third quarter. The company also disclosed another round of layoffs affecting 470 employees. The company's press statement alluded to a potential liquidity crisis at the subprime lender:
“We are disappointed to report a loss for the third quarter,� explained Hugh Miller, president and chief executive officer. “A variety of unprecedented market events took place during the quarter, which had a negative impact on not only our earnings, but those of virtually every company in the lending sector. In response to these events, the Company took important steps during the quarter that enabled us to continue operating when many others were unable.� ... "We believe that obtaining additional working capital is our first and highest priority and a necessary step for the future of our Company. Further disclosure with respect to the Company's efforts to obtain financing will be provided as and when appropriate.�
The press release found company exectives using the word "hope" more than any earnings discussion I've ever seen, which goes to underscore how dire the straights have become for those still standing in the subprime lending space. Delta Financial said it launched an FHA lending program during the third quarter as part of an effort to expand origination options, in addition to undertaking staff reductions; company CEO Hugh Miller said the effort was needed to "buckle down" amid "the worst global credit market disruptions to date." The company also disclosed that its $900 million securitization of subprime mortgages, announced in September, generated a loss for the company (I'd suspected as much at the time, and I'd suggest further that it probably also has already generated losses for some investors at this point too). Back in May, Delta Financial was perhaps the lone bright spot in the entire subprime lending industry, with the company reporting earnings of $4.9 million on the heels of conservative underwriting when most of its competitors were folding at a record pace. The wheels have come off since - for Delta and most of the lending industry at-large. For more information, visit