NovaStar Shares Drop 50%; Bankruptcy Looks More Likely

Troubled home lender NovaStar saw its stock plunge more than 50% Thursday after the company announced a large quarterly loss and conceded bankruptcy is a possibility. For the quarter, NovaStar lost $598 million ($64.05/share) after recording profits of $25.3 million ($2.91/share) last year. Scott Hartman, CEO of NovaStar, said, "As the mortgage environment has grown progressively worse through 2007, we have greatly reduced our business activity... Going forward, our strategy is to manage the cash flows from our portfolio of mortgage-backed securities and operate our retail brokerage operations." The company has halted mortgage-lending and said it will not return to the business until the environment becomes more stable. The report also listed scenarios where the company would seek bankruptcy protection, and added that there was a "high likelihood" its shares get delisted from the NYSE. Shares of the company, which traded at the split-adjusted rate of $106.60 at the beginning of the year, traded down 56.6% to $1.99 in midday trading Thursday.

Sources: Press release, AP, Reuters
Commentary: NovaStar's Days Are Numbered • NovaStar Headed For Bulletin Board
Stocks to watch: NFI. Competitors: BAC, WM. ETFs: XLF, PGF, IYF

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