S&P drops Fremont General

Standard & Poor's said it lowered its counterparty credit rating on Fremont General Corp. to B- from B+, adding that the rating remains on CreditWatch with negative implications, where it was placed on March 1.

The rating action reflects the agency's concerns about Fremont's decision to exit the subprime real estate lending business following a proposed cease-and-desist order from the FDIC.

This voluntary decision calls into question the company's ability to compete as a monoline lender in the risky commercial real estate market, S&P said, noting that the company might also have to lighten concentrations in its commercial real estate portfolio to satisfy the conditions of the cease-and-desist order.

In addition to the increased pressure that Fremont has faced from the overall state of the subprime mortgage market, the cease-and-desist order may signal significant deficiencies in the risk-management processes and oversight in Fremont's core business lines, raising concerns about higher credit costs and Fremont's ultimate level of core earnings, the agency noted.

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