A Bearish Week for Area Firms
Monday, June 30, 2008
The Washington region's once-promising financial sector has taken some of the hardest hits among area stocks as the broader market has moved into bear territory.
Friedman, Billings, Ramsey Group, an Arlington investment bank, hit a 52-week low of $1.29 a share June 20 before closing at $1.84. On Friday, it closed down 14.7 percent for the week, at $1.57. The company still appears to be feeling the effects of a $550 million bet in the subprime mortgage sector in 2005, most of which evaporated.
Allied Capital, a D.C. company that invests in midsize businesses, slid 11.2 percent last week on news that it raised $193 million through the private placement of unsecured debt. Allied's Bethesda counterpart, American Capital Strategies, was off 8.1 percent last week. CapitalSource, a Bethesda real estate investment trust that last week offered to sell 30 million new shares, dropped 17.3 percent.
"What you are seeing is a major contraction in the capital markets and in the economy," said Eric D. Hovde of Hovde Financial, a District hedge fund that trades in bank stocks. "There are downdrafts in valuations across every single sector tied to real estate, the financial systems or consumer spending."
J.E. Robert Investors Trust, a McLean commercial real estate finance company run by Joe Robert, hit a new 52-week low last week, evidence that the commercial real estate market may be starting to feel the pain.
"The first wave has so far been the residential housing market," Hovde said. "But the commercial property market is starting to weaken."
Fannie Mae and Freddie Mae, the region's mortgage-financing giants, continued their downward arc. They were off 12.7 and 18.2 percent, respectively, for the week.
Declining home values and high gasoline prices are socking consumers from both sides. The result is shrinking business revenue, rising costs and payroll contraction.
"This thing could last multi-years," Hovde said, "and it's going to be a lot worse when we are talking next year at this time."
Blue chips unrelated to finance and real estate showed the slide affected a broad range of industries, though most of their shares didn't fall far. The Standard & Poor's 500-stock index fell 3 percent last week.
Hotelier Marriott International, which relies on affordable transportation, hence cheap oil, to keep its rooms filled, slid 2.8 percent last week. Bethesda's Lockheed Martin, a big aerospace and technology firm, was down 2.4 percent for the week. General Dynamics, a Falls Church maker of combat vehicles and ships, was off 2.6 percent for the week. Danaher, an industrial manufacturer in the District, was down 4 percent.
"When the market gets like this, it doesn't discriminate," said John K. Delaney, founder and chairman of CapitalSource. "It becomes a broad sell-off."
Bloomberg's list of three-month losers in Washington resembled a bloodletting. MCG Capital, an Arlington private-equity firm specializing in mid-market companies, is down 55 percent; First Mariner Bancorp of Baltimore, 44 percent; Virginia Commerce Bancorp of Arlington, 45 percent; LandAmerica Financial Group of Glen Allen, 44 percent; Chindex International, a Bethesda health care services and medical equipment provider, 42 percent; and XM Satellite of the District, 32 percent.
One observer said that investors who have diversified aren't immune to the downturn but are insulated somewhat.
"The war and the thirst for energy is boosting the value of companies in the marketplace, which helps the local region in general," said Peter F. Nostrand, a former chairman of SunTrust Bank and a longtime fixture on Washington's financial scene. "The offset is that for those working for banks, mortgage businesses, home construction, insurance and airlines, you are not happy."