When American Home Lender went to 34 cents a share was it because the stockholders sold their stock so that the price took a dive, on the news that the company could not make it's margin calls or bond lenders calls to recoup their lending expenses?
If stock holders had held steady and not sold, would AHM be bankrupt now? And how did so many shares get sold so quickly? Isn't that called market manipulation and isn't that punishable by law through prosecution from the SEC? Where is the SEC in this?
Investors in American Home Mortgage (AHMIQ - Cramer's Take - Stockpickr) were dealt a nasty blow last week as their stock became the latest victim of a deteriorating credit environment.
The mortgage lender's stock plunged 84% Tuesday on news it was considering liquidation. On Thursday the company abruptly announced it would shutter its lending business and lay off some 6,000 employees. The company filed for bankruptcy Monday. The stock, which traded over $20 in June, is now listed on the pink sheets with a value of roughly 35 cents.
While it may seem like cold comfort to investors who lost on it, the American Home Mortgage disaster offers some investment lessons. Learning from them may help in avoiding similar portfolio burns in the future.
While the deterioration of AHM surprised many, there were clues that trouble had been brewing. With the benefit of 20/20 hindsight, let's first take a look back at the possible warning signs.
On June 29, the company pulled 2007 guidance and announced that delinquent payments would lead to a second-quarter loss. It was probably no coincidence that the announcement was made on a Friday. Shares dropped 12% on the news. The company was nonspecific about the reason for this pulled guidance — a definite red flag.
On July 18, the stock mysteriously went into a 20% free fall, and the NYSE asked the company for comment. Once again, management remained elusive, stating that it doesn't comment on rumors. By the next day, the alleged rumor that Lehman was going to shut down the company's credit line was widely published in the media. The company denied the rumor.
Despite the invalidity of the credit-line rumors, the stock price did not recover. Could some sellers have known that a bigger problem was looming? The lack of recovery in the company's stock was a last chance for long investors to cut losses.
By July 30, the full truth was revealed that the company was buried in margin calls and would be unable to cover. Unfortunately, by then it was too late.