Fremont General Corp. said Friday that it expects to file for bankruptcy protection, because it cannot file its financial information in a "realistic time frame" to obtain shareholder approval for the pending sale of some assets and deposits to CapitalSource.
The holding company for the Brea, Calif., industrial loan company and subprime lender Fremont Investment and Loan expects to complete the sale in bankruptcy.
In a filing with the Securities and Exchange Commission, Fremont General said it did not have "an alternative transaction" to the deal it struck last month with CapitalSource.
After the Federal Deposit Insurance Corp. ordered Fremont Investment and Loan in March to raise capital or sell itself, its parent struck a deal to fold $5.6 billion of deposits and 22 branches into a California company that CapitalSource, a Chevy Chase, Md., real estate investment trust, plans to create with an industrial loan charter.
This week Fremont General agreed to sell $12.2 billion of mortgage servicing rights to Litton Loan Servicing, a unit of Goldman Sachs Group Inc. The price was not disclosed.
According to the SEC filing, Fremont plans to request that a bankruptcy court approve both the CapitalSource and Litton deals. Fremont's board has agreed to provide FDIC certification that all the bank's liabilities would be assumed by the newly formed industrial bank, resulting in "the termination of its FDIC-insured status."
The company also expects to file an application with the California Department of Financial Institutions to surrender its banking charter, allowing for the liquidation of Fremont Investment.
Fremont General will take "all actions necessary and appropriate" to comply with the FDIC order, which designated Fremont Investment as "undercapitalized."
The order came a year after the FDIC issued a cease-and-desist order against the ILC, giving it three months to repair the risk management problems in its mortgage division and to improve its management and capital levels.
In the SEC filing, Fremont General said it hoped to "avoid further action by regulatory authorities that could be detrimental" to the company.
This week a Massachusetts court upheld an injunction that would halt all foreclosures by Fremont Investment in the state and give local authorities time to review each foreclosure filing. The ILC now must give Massachusetts officials at least 30 days' notice of any foreclosure it plans on roughly 2,200 loans it owns and services there.