Aames Stock Dips 6% as Earnings Lag Forecast

Home equity lender Aames Financial Corp.’s stock fell about 6% Tuesday after the company posted a wider-than-expected fiscal fourth-quarter loss and failed to announce a widely expected merger agreement.

Shares of the Los Angeles-based company slid $1.25 to close at $19.25 on the New York Stock Exchange, after trading as low as $18.81.

Aames reported after the close of trading Monday that it lost $14 million, or 48 cents a share, in its fourth quarter. In a conference call, the company told analysts that profit was hurt because it made wrong assumptions about the rate of mortgage prepayments.

After weeks of speculation, Aames also confirmed it had hired Donaldson Lufkin & Jenrette Inc. as an advisor in talks about a possible sale or merger.

Speculation about such a development had pushed the stock up in recent weeks, from a 12-month low of $10.50 in early May.

“The Street was expecting a more definitive statement of a sale. Instead, we got a write-down of earnings,” said Jeffrey Evanson, an analyst with Piper Jaffray.

The lender’s fiscal fourth-quarter loss included a one-time charge, an asset write-down and a lower reported gain on a sale. Excluding those items, its operating profit was 35 cents a share, far below the 45 cents a share forecast by Wall Street analysts surveyed by the firm First Call.

Aames said its profit from operations fell 47% to $4.38 million, or 15 cents a share, during the quarter ended June 30, from $8.28 million, or 32 cents, a year earlier.

Charges of $18.5 million, or 63 cents a share, for an unrealized loss from revaluation of some assets and severance costs related to its acquisition of One Stop Mortgage Inc. resulted in a loss of $14.1 million, or 48 cents a share, for the most recent quarter.

“Aames is experiencing higher prepayment rates, which could negatively impact earnings in coming quarters,” said Prudential Securities analyst Jennifer Scutti.

Industry sources said Seattle-based Washington Mutual Inc. and Los Angeles-based California Federal Savings Bank, which was acquired by First Nationwide Holdings Corp. earlier this year, are talking with Aames.