Fremont General Corporation (NYSE: FMT) has received a regulatory letter from the Federal Deposit Insurance Corporation, of the FDIC, with an order to recapitalize itself.
Fremont does business primarily through its wholly-owned bank subsidiary, Fremont Investment & Loan. The letter was concurrence with the California Department of Financial Institutions issuance of a Supervisory Prompt Corrective Action Directive to the bank operation. Fremont General and Fremont General Credit Corporation, have also been advised.
The Directive requires the bank, the company, and its credit arm to take one or more of the following actions to recapitalize the Bank by May 26, 2008:
- Sell enough voting shares or obligations to be "adequately capitalized" under FDIC regulations.
- Accept an offer for the bank to be acquired by another depository institution, or combine with another insured depository institution.
- Fremont General and Fremont’s credit unit shall divest themselves of the Bank.
The FDIC has deemed the bank as undercapitalized and this will limit and restrict certain business operations of the bank. This directive will require that for many of the normal operations to resume it must be adequately capitalized for four straight quarters unless he FDIC lifts the directive.
On February 28, 2008, Fremont and its Bank hired Credit Suisse and Sandler O’Neill as advisors to develop and implement strategic initiatives in an attempt to raise additional capital and/or to sell the bank.
Fremont shares surged on Monday and have traded above $0.60 since with a $0.61 close on Thursday. Shares are indicated down at $0.54 this morning. The 52-week high was $13.80 and from 2004 to 2006 this traded between $20 and $30 for much of the time. Help or no help, this one’s uglier than 40 miles of bad road.
Jon C. Ogg
March 28, 2008