American Home files new Chapter; NovaStar fends off rumors; National City changes ways; Griffon seeks options

By Evan Weinberger

New York, Aug. 6 - The expected bankruptcy filing by American Home Mortgage Investment Corp. couldn't dampen a steep Wall Street rally that erased the Dow Jones Industrial Average's tumble Friday.

But the bad news continued in the mortgage and housing sectors. Several mortgage lenders, including NovaStar Financial Inc. and National City Bank, a subsidiary of National City Corp., temporarily suspended home loans.

And the housing and mortgage slump claimed one other victim, as Griffon Corp., a company specializing in garage doors and other home-related products, announced that it was looking at its strategic options following a drastic tumble in its quarterly earnings.

Even in the face of mounting mortgage, housing and credit concerns and with a Federal Reserve interest rate announcement set for Tuesday, the markets raced forward Monday. The Dow picked up 286.87 points, or 2.18%, to close at 13,468.78. That follows Friday's more than 281 point drop.

The Nasdaq followed suit, gaining 36.08 points, or 1.44%, closing at 2,547.33.

"I think it was just a matter of time before it happened," one trader said. "I think you saw a bunch of people buying short and a bunch of people saying, this is crazy. There's a lot of value here."

Financial stocks, including Bear Stearns Cos. Inc. and Citigroup Inc., were active Monday.

Bear Stearns, on news that it had forced out co-president Warren Spector following the collapse of three hedge funds linked to subprime mortgages, dropped to a 52-week low early but rallied, picking up $5.46, or 5.04%, to close at $113.81.

Citigroup joined the rally, closing up $2.63, or 5.75%, at $48.35.

"Somebody decided there was too much selling last week," one analyst said. "Of course, we'll see with the Fed announcement tomorrow [Tuesday]. That'll be interesting."

The usual flow of mergers and acquisitions slowed Monday, with only one small deal announced. Bangalore, India-based Wipro Ltd. acquired Infocrossing Inc. of Leonia, N.J. Both firms are in the information technology and business outsourcing sector. The deal is valued at around $600 million.

Mortgage problems continue

After Friday's announcement that it was cutting staff and cutting costs, American Home Mortgage's Chapter 11 filing Monday was hardly a surprise.

"It was already looking like a bankruptcy situation," one analyst said.

Although American Home Mortgage was not a subprime lender, it fell victim to the skittishness in the mortgage sector in general. Investors stopped putting money into the company, resulting in a stock price tumble, at the same time as an increasing number of defaults.

In the end, the Melville, N.Y.-based home lender - once the 10th-largest in the United States - couldn't withstand the losses.

American Home Mortgage Stock fell again, closing at 44 cents, a drop of 36.69%, or 26 cents.

NovaStar stock dove then rose Monday on news that it suspended home loans issued through brokers Friday. The Kansas City, Mo.-based mortgage lender put out a statement announcing that it would resume approving wholesale mortgage - through brokers - Tuesday and that it had continued approving retail mortgages - directly to borrowers - while wholesale mortgages were suspended.

NovaStar stock finished the day up 38 cents, or 5.94%, finishing at $6.78. It had been trading at a loss of over 30% earlier in the day.

A further unit of Cleveland-based National City suspended issuing some loans Monday. National City Home Equity unit announced that it was suspending new approvals Monday, following the company's banking unit, which suspended loans that did not require income statements.

National City (NYSE: NCC), a holding company for several financial institutions, picked up $1.42, or 5.22%, Monday, closing at $28.64.

Private equity fund Cerberus Capital Management LLC announced that its mortgage-lending arm was suspending subprime loans as well.

Griffon sees door shut to some options

With homebuilders and home lenders hurting, it stands to reason that companies producing products for the home would also be hurt.

That happened to Jericho, N.Y.-based Griffon, a producer of garage door openers and other technologies for the home, announced that it was searching for strategic options Monday.

The company said that profits for the second quarter, at 23 cents per share, were down 77% from 61 cents per share in the second quarter of 2006.

All this came after the Clinton Group, a hedge fund and major share holder, demanded strategic changes in the firm in May.

Griffon hired Goldman Sachs to help it search for its strategic options, but in a statement said the options "options are not attractive at this time" given the problems in the homebuilding and credit markets.

Griffon stock (NYSE: GFF) surrendered 18.47%, or $2.94, closing at $12.98.

One outsourcing firm buys another

One new merger was announced Monday. Bangalore-based information technology and business outsourcing firm Wipro announced the takeover of Infocrossing, a business outsourcing operation from Leonia, N.J. The deal is valued at $18.70 per share, or around $600 million.

The deal is set to close in the fourth quarter of 2007. Wipro plans to issue a tender offer for all of Infocrossing's outstanding shares and will then merge Infocrossing into an existing subsidiary.

The Infocrossing acquisition will enhance Wipro's health care outsourcing operations, the company said in a statement released Monday. "With its unique platform-based solutions, Infocrossing also brings in significant expertise in health plan and payer management segments," said Suresh Vaswani, president of Wipro's global information technology lines, in a news release. "With its proven track record of processing over 175 million claims annually and providing contracted services to over 90 managed care organizations, Infocrossing will considerably enhance Wipro's ADM & BPO offerings to our Healthcare customers."

Investors reacted tepidly to the announcement. Wipro stock (NYSE: WIT) slipped 13 cents, or 0.93%, closing at $13.82. Infocrossing stock (Nasdaq: IFOX) moved up, gaining 42 cents, or 2.37%, finishing the day at $18.15.

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