Craigla1

Why Downey Financial is Not IndyMac

One further comment:

"Indeed, even were the bank's capital wiped out by losses of say 2x current default rates, a remote possibility in our view, the loan portfolio would still be worth north of 60-70% of par. Right?"

If the portfolio were worth 70 cents on the dollar, consider this:

70% of $11.363 billion equals $7.954 billion. Or total write-downs of $3.409 billion.

Yet Downey currently has a total provision for loan losses, plus stockholders equity, of only $1.591 billion. In other words, if the loss rate contemplated by Mr. Whalen were to prevail, DSL would have to add over $1.8 billion to their loan loss provision!

Please make an effort to do the math here, Mr. Whalen! There is a very good reason the market puts a nearly insolvent value in DSL's common equity.