Recession or not, retailers are in trouble

     Are we in a recession?
     Experts and politicians argue this question every day.
     Meanwhile, the nation’s gross domestic product — a barometer of recession territory — is floundering like a fish out of water.
     The Commerce Department revised its second-quarter outlook and said the nation’s economy grew 1.9 percent.
     But the government revised its positive fourth-quarter 2007 number and said the economy actually shrunk by 0.2 percent over that period.
     In the meantime, large retailers keep going bankrupt.
     Mervyns LLC, Shoe Pavilion Inc., Steve & Barry’s LLC, Shaper Image Inc., Linens ‘n Things Inc., Levitz Furniture Inc., Wickes Furniture Co. and Metromedia Restaurant Group — which owns Bennigan’s and Steak & Ale and Tavern restaurants — have all recently filed Chapter 7 or Chapter 11 bankruptcy documents.
     Rumors are flying that Circuit City could be next.
     “This is the beginning of a wave,” said Harlan Platt, professor of finance and corporate-turnaround expert at Northeastern University in Boston. “In every economic boom, investor enthusiasm leads to over-expansion. In recessions and slow periods, companies on the fringe begin to fail.”
     The recent bankruptcies — along with the financial failure of IndyMac bank and a handful of other institutions across the country — is only the beginning of more to come, Platt said.
     “Many of these companies are in California,” he said, but wouldn’t divulge names. “If the stock price is less than $5, they’re in trouble. Any investor in those stocks should give them a serious look.”
     During the real-estate rush, several banks never made covenant deals when lending money. A covenant gives a bank authority to usher in a turn-around strategy for a failing company.
     “They must’ve been on LSD to lend money with no covenants,” Platt said. “That’s like buying a car without brakes. You eventually know it has to crash.”

Mervyns founder discusses bankruptcy with The Sun

     Mervyn Morris isn’t surprised the company he founded in 1949 filed for bankruptcy on Tuesday.
     Even more interesting: the filing was made on the same date that Mervyns opened its first store in San Lorenzo 59 years ago.
     “That smarts,” Morris said over the phone on Wednesday. “It’s ironic.”
     Almost all of us have walked out of the iconic department store at one time in our lives with bags stuffed full of discounted clothes and other goodies on sale.
     Morris headed Mervyns until 1978, when Dayton Hudson Corp. bought the company. Dayton Hudson eventually became Target Corp.
     The ten Mervyns stores doing business across San Bernardino and Riverside counties could be on the chopping block, but spokesman Andrew Siegel said the company hasn’t announced what stores, if any, will shut their doors.
     Siegel wouldn’t speculate on whether or not the Mervyns store slated for Inland Center Mall in San Bernardino will open in October as planned.
     Could the plan go bust?
     “Anything is possible,” Siegel said.
     Meanwhile, construction is continuing on the Inland Center building that Mervyns said it would move into, according to Arun Parmar, senior property manager of the mall.
     Macerich Co., a Santa Monica real-estate company, owns and manages the mall.
     Wachovia Capital Finance Corp. is lending Mervyns LLC $465 million to keep the company on its legs while chartering the bankruptcy process.
     Several private equity firms, including Cerberus Capital Management and Sun Capital Partners Inc., bought Mervyns from Target Corp. in 2004 through a partnership.
     Mervyns LLC might be going bankrupt, but the partnership made millions of dollars from selling off several real-estate holdings.
     In Morris’s opinion, the CEOs behind Mervyns “lost their focus,” and at the same time “they devoted all their energy to Target.”
     “Mervyns went through a whole series of management changes,” Morris said. “One CEO would throw out lady’s dresses, while another one said they needed more cosmetics. Then the next one would bring lady’s dresses back. One decided they should compete with Kohl’s, and the other decided they should compete with Wal-Mart.”
     Morris now owns and operates a family investment firm in Menlo Park called Morris Management Co.
     Macerich — which also owns The Mall of Victor Valley and the Mervyns storefront there — bought 43 Mervyns buildings in December, with 13 of them in their own malls.
     Mervyns laid off almost 200 workers at its Ontario distribution warehouse in April, saying it would save millions of dollars by outsourcing to a third-party logistics vendor.
     Mervyns moved into its 650,000 square-foot Ontario warehouse in the mid-1990s. It serves as the cargo hub for stores in Arizona, Nevada, New Mexico, Texas and Utah.

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Will the I.E. RV industry survive hard times?

     With five major dealers closing stores and factories over the last year, the local RV industry is going down the tubes fast.
     Will it be near dead in a couple of years?
     It’s not unfathomable, given tanking sales and homeowners’ dried up well of home-equity credit.
     One thing is for sure: It pays to be in the RV market’s spin-off industry.
     While recreational vehicle manufacturers and dealers across the two-county region keep downsizing, Valerie Parmenter is still employing her eight workers to paint, maintain, repair and refurbish used RVs at her company in northern San Bernardino, VIP Enterprises.
     “We’re slow too, but we’re still hanging in there pretty strong,” Parmenter said. “My volume is down a tad. Right now we’re looking OK, but I don’t know what the next three months are going to bring.”
     RVs get 8 to 10 mpg, which is plenty of incentive to vacation at campgrounds closer to home. Some families feeling squeezed by gas prices and inflation are opting for this choice more often than not.
     And they’re throwing the cash savings at places like VIP Enterprises to “get their RVs looking new again,” Parmenter says.
     “Because customers aren’t buying new coaches, they’re fixing up the ones they have,” she said. “These campgrounds have rules that you can’t have a ratty-looking coach. So (RV owners) come to me to clean them up.”
     Perris-based Weekend Warrior Trailers Inc. announced this week it’s closing two factories and laying off 250 workers.
     Fleetwood Enterprises in Riverside just closed its plant there, on top of shutting doors at another one in Fontana last year. The company has cut dozens of jobs over the last year.
     Earlier this month, La Mesa RV Center Inc., a San Diego-based RV and motor home dealer, announced the closure of its San Bernardino store by the end of this year.
     Ontario-based Alfa Leisure Inc. shut down in April, slashing 150 jobs.
     And National RV closed down its Perris headquarters and manufacturing plant in December, laying off 600 employees.

Vineyard Bank agrees to OCC consent order

     Vineyard Bank announced on Monday that it is voluntarily agreeing to a federal regulator’s consent order, which says the bank must manage its financial woes by following a three-year capital plan and numerous other rules.

     It’s the latest regulatory eyeing of the bank and its parent company, Corona-based Vineyard National Bancorp.

     In May, the Federal Reserve Board and Office of the Comptroller of the Currency in Washington D.C. said the holding company was in a “troubled condition.”

     On top of a heated proxy battle coming to head at the Aug. 5 shareholder meeting, the OCC charged Vineyard with the daunting task of keeping its head above regulatory waters, according to a Securities Exchange Commission filing on Monday.

     Vineyard must not only diversify its investments, but also get the OCC’s permission if it wants to grow its loan portfolio by more than 5 percent from the prior year, among a litany of other regulations.

     The documents also said Vineyard told its creditor — First Tennessee Bank National Association — on Thursday that it might need another extension on a $48 million loan. The overdue loan was already extended to Aug. 29, and Vineyard is backing nonpayment with its entire shareholder stock.

     Vineyard is suffering unprecedented losses because it loaned money to developers and builders who can’t repay what they borrowed.

     A new board of directors, if elected at the shareholder meeting, could challenge the OCC’s consent order.

     Vineyard’s shareholder meeting will be held at 2 p.m. at the Doubletree Hotel in Ontario on 222 N. Vineyard Ave.

     Investor John Salmanson and former CEO Norman Morales are expected to nominate their hand-picked candidates for the board of directors. Besides himself, Morales is asking for approval of Thomas Koss II, Douglas Kratz, Cynthia Harriss, Harice “Dev” Ogle, Lester Strong and Glen Terry.

     Through investor group One Investments LLC, Kratz bought almost 10 percent of Vineyard’s stock in late June for about $6.3 million. Morales and Salmanson joined Kratz in the stock purchase.

     Vineyard is asking shareholders to approve interim CEO James LeSieur, Frank Alvarez, David Buxbaum, Charles Keagle, Robb Quincey, Joel Ravitz and J. Steven Roush as board members.


     Look below to read Vineyard’s news release about their agreed-upon consent order with the OCC:

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Evicted homeowners’ “trash” boosts junk-hauling industry

     You’ve heard the ole’ saying: One man’s junk is another man’s treasure.
     It couldn’t be more true for Frank Gallardo, a Fontana-based entrepreneur that’s stumbled across a business that’s putting more than just bread on the table.
     In fact, it’s employing his entire family.
     As Southern California’s housing foreclosure crisis keeps shutting the doors on homeowners every month, Gallardo’s crew keeps showing up at the doorstep with mops and trash bags in hand.
     For banks repossessing these homes, the beds, clothes, shoes, televisions and toys left behind by evicted homeowners amounts to one big pile of junk.
     But for Gallardo, junk equals cash.
     “The money is there,” said Gallardo, who owns Zzazz Industries. “It puts a lot of bread and butter on the table.”
     A year ago, he was subcontracting with real-estate agents who were in charge of overhauling bank repossessions.
     “Now I work directly with the banks,” he said. “And it’s the whole package.”
     Besides cleaning homes, he makes repairs so that houses reform back to city construction laws which were violated by the prior owners.
     Gallardo feels he’s struck gold, but he knows it won’t last forever.
     “I see it ending about five years down the line,” he said. “With all the inventory banks have, the longer the homes sit, the more deteriorated they’re becoming.”

Downey Savings & Loan’s troubles raise eyebrows in the I.E.

     The hammered banking industry is creating shock waves throughout San Bernardino and Riverside counties.
     First it was Pasadena-based IndyMac. The failed institution’s branches drew local customers eager to yank their money out of accounts just as the federal government took over the bank’s operations.
     Now it’s Downey Savings & Loan.
     The bank hasn’t failed, but it’s holding people’s money at more than 25 full-service and in-store branches in the two-county region.
     Investors and banking analysts are speculating whether Downey will have to close certain branches because it’s falling on hard times.
     The bank’s Newport Beach-based holding company, Downey Financial Corp. (NYSE: DSL), reported on Thursday that it lost $466 million over the first six months of this year compared to about $75 million in profit gained over the same period in 2007. Downey made risky mortgage loans to home buyers during the real-estate rush.
     There could be a silver lining, though. Downey owns 174 retail branches that held $9.9 billion in customer deposits by second quarter’s end. The financial base might help Downey whether hard times, some financial experts say.
     But others disagree. Paul Miller, analyst with FBR Capital Markets Corp., said in a Thursday research note that Downey’s deposit’s will only help so much, given California’s deteriorating housing market.
     Customer deposits dropped 12 percent between now and a year ago, the company reported.

1 in every 32 I.E. homeowners delinquent, in foreclosure or seeing home auctioned

     From April to June, one in every 32 homeowners in the San Bernardino-Ontario-Riverside region either gave up the keys to their house, saw it auctioned off or couldn’t pay their mortgage on time, according to a report released today by Irvine-based data company RealtyTrac.
     On a quarterly basis, the area ranked No. 2 in foreclosure filings nationwide, the same rank bestowed during this year’s first quarter.  The so-called “filings” include foreclosures, default notices and auctions.  Stockton was No. 1 and four other California metro areas placed in the top 10 out of RealtyTrac’s list of 100 cities.
     The 43,600 second-quarter foreclosure filings in our region jumped 17 percent from the first quarter and almost tripled from a year ago.
     On Thursday, the National Association of Realtors said nationwide existing home sales dropped 2.6 percent in June — more than double the decline that had been expected and 15 percent lower than where they were a year ago.
     The association also said the median price for a home sold in June dropped 6 percent from a year ago, the fifth largest year-over-year price decline on record.
     Nationwide, one in every 171 households received a foreclosure filing during the second quarter, which amounts to almost 740,000 properties, RealtyTrac said.
     More than 202,000 of these properties are in California, where one in every 65 homes received a filing, the highest state ratio in the country.

     Look below to read RealtyTrac’s news release:

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Fremont Investment & Loan cuts 243 jobs

     Fremont Investment & Loan is slashing 243 jobs at its home loan center in Ontario, according to records filed with the state’s Employment Development Department.
     The investment-lending bank snatched the regional spotlight in June when it announced that its Brea-based parent company, Fremont General Corp. (OTC: FMNTQ), was filing for bankruptcy.
     But Fremont Investment & Loan is following a different course.
     In May, Litton Loan Servicing — a Goldman, Sachs & Co. affiliate — purchased the Fremont Investment & Loan home mortgage unit, which held $12 billion in loans.
     Fremont General also said last week that CapitalSource Inc., a Maryland-based investment and loan company, got approval by a federal bankruptcy court to acquire Fremont Investment & Loan’s retail bank branches and assets.
     The merger apparently wasn’t enough to stem job losses.
     Shares of Fremont General Corp. spiked at more than $30 in early 2004. The stock closed at 18 cents on Wednesday.
     The company had one retail bank in Redlands and several others located throughout Los Angeles and Orange counties.
     Fremont’s layoffs add to a growing list of financial service jobs being cut throughout San Bernardino and Riverside counties since the housing boom went bust.
     In December, Wells Fargo’s home finance arm in Diamond Bar shut its doors, laying off 58 workers, and JP MorganChase’s subprime lending branch in Ontario axed 91 employees.
     First Magnus Financial Corp., a secondary-mortgage service based in Tucson, Ariz., shut down its Rancho Cucamonga branch in August and let 76 employees go before filing for bankruptcy.
     Option One Mortgage Corp., a subsidiary of H & R Block, cut 39 jobs in Rancho Cucamonga in July 2007.
     And Orange-based ACC Capital Holdings had two subsidiaries in Rancho Cucamonga that laid off 51 workers in May 2007.

Mervyns unwilling to speculate on bankruptcy rumor

     Ten Mervyns stores sell goods across San Bernardino and Riverside counties, and management at the Inland Center Mall in San Bernardino is promoting what’s slated to be the 11th.
     But will the Hayward-based retailer still be in business by this time next year?
     That’s the million-dollar question.
     Rumors flew on Monday that Mervyns might go bankrupt in the near future.
     The Wall Street Journal, using unnamed sources, reported that New York-based investment firm CIT Group Inc. stopped financing Mervyns in spring. It also said merchandise dealers are thinking twice about selling their wares to the nationwide chain.
     “I can’t comment on what’s been published,” said Mervyns spokesman Roy Berces on Tuesday. “There’s nothing for us to say right now on those stories.”
     Both Berces and Arun Parmar, senior property manager at Inland Center, say Mervyns will still open a store at the mall in October. Macerich Co., a Santa Monica real-estate company, owns and manages Inland Center.
     If Mervyns files for bankruptcy, any back-up plan to fill the empty space left at Inland Center with another tenant is “speculation” at this point, Parmar said.
     “There’s probably a lot of options available to us if something were to occur,” he said.
Mervyns laid off almost 200 workers at its Ontario distribution warehouse in April, saying it would save millions of dollars by outsourcing to a third-party logistics vendor.
     Mervyns moved into its 650,000 square-foot Ontario warehouse in the mid-1990s. It serves as the cargo hub for stores in Arizona, Nevada, New Mexico, Texas and Utah.
     Two private equity firms, Cerberus Capital Management and Sun Capital Partners Inc., bought Mervyns from Target Corp. in 2004.
     Macerich — which also owns The Mall of Victor Valley and the Mervyns storefront there — bought 43 Mervyns buildings in December, with 13 of them in their own malls.

     Look below to read the Wall Street Journal article:

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Chino Commercial Bancorp’s earnings slide 50 percent compared to last year

     Chino Commercial Bancorp (OTCBB: CCBC.OB) said on Monday that its earnings slid more than 50 percent for the first six months this year compared to the same period in 2007, but it still avoided red on its balance sheet by more than $180,000.
     For the same six months, the Chino-based holding company of two-branch Chino Commercial Bank also reported loan loss provisions of almost $280,000 — more than quadruple the amount seen last year.
     No stock traded on Monday, and its price stayed at $17.00 a share. In October, shares reached $26.
     Two delinquent loans are to blame for Chino Commercial’s earnings drop — one being a business loan whose performance is getting hit by the real-estate market.
     “The other one is a construction loan on a housing tract,” said Dann Bowman, president and CEO. “They’re both real-estate secured.”
     Out of the bank’s $51-million loan portfolio, less than 2 percent is invested in residential real estate. Most loans are small business or commercial real-estate related.
     “There are clearly opportunities for expansion right now with other banks having trouble or possibly going away,” Bowman said. He didn’t mention names.
     Federal banking regulators have been eyeing Rancho Cucamonga-based PFF Bancorp, parent of PFF Bank & Trust, and Corona-based Vineyard National Bancorp, parent of Vineyard Bank.
     Both banks made big loans to home developers and builders who can’t repay what they borrowed. Between both, losses are amounting to hundreds of millions of dollars.
     Chino Commercial also said its total deposits dropped more than 5 percent from December to June from about $70.4 million to $66.4 million.
     Recently, the bank was recognized by U.S. Banker magazine as being one of the top 200 community banks in the country for the second consecutive year. The bank made the top-200 list because of its return on average equity (ROE) over the past three years of 13.5 percent this year and 12.69 percent in 2007.

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