On October 30, Fremont General reported third quarter earnings of $0.40 per share, which is an increase of 99% over the previous year third quarter earnings of $0.21 per share. Earnings for the 9 months ended September 30, 2002 were $1.00. The earnings performance of Fremont General is excellent. For the fourth quarter we are estimating earnings of $0.38 per share bringing annual earnings up to $1.38 per share. Our slightly lower fourth quarter estimate is due solely to the upcoming holiday season. Additionally, the current book value is $5.88 per share and should end the year at about $6.26 per share.

In Addition to the very strong earnings performance, the company reduced its long-term debt due in 2004 by $23 million to a balance of $73 million (this note was originally $220 million). Fremont General indicated that these notes would be paid off by June 30, 2003, which is one year ahead of schedule.

The non-performing loan portfolio declined during the quarter by about 7% and the company's loan loss provision is currently at 139% of the non-performing loans. This is an extremely conservative and positive situation since the reserves against potential bad loans are 39% greater than the total possible loss.

We are somewhat perplexed and disappointed in the stock price reaction to this extremely positive earnings performance. We cannot identify a fundamental reason for this lackluster stock performance. Our suspicions are that the sizeable short position may be the culprit.

At the present time, there is a short position of about 8,000,000 shares, which is quite sizeable when compared with the total outstanding of 75 million shares. There are no publicly traded options, thus it would appear that there is no option-related shorting. With respect arbitraging against the outstanding preferred stock it would appear this is not the case because of the limited liquidity in the preferred stock. Consequently, it seems to us that there is a short term "Mexican Standoff" between the shorts and the longs. Given the strong fundamentals of Fremont General this cannot last too long. Once this standoff subsides, we would expect the stock to move sharply higher.

Fremont General is currently trading at $4.95 per share. We estimate FMT will earn $1.38 for FY 2002. A conservative P/E of 8 would indicate an $11.04 stock price. That would represent a potential gain of 123% from current levels. We continue to recommend Fremont General as an extremely undervalued situation and thus a strong buy.

Stock Traders Press Management