Fremont General investor may back out

NEW YORK (Reuters) - Fremont General Corp FMT.N, which stopped making subprime home loans in March, said an investment group may pull out of an agreement to inject $80 million to help insure the savings and loan's survival.

Shares of Fremont fell as much as 23.6 percent.

The group led by billionaire investor and former thrift executive Gerald J. Ford had agreed to buy preferred stock and warrants in Fremont, for an initial 16 percent stake.

Fremont, though, said that "in light of certain developments pertaining to the company" and its Fremont Investment & Loan unit, the Ford group was not prepared to invest. The company did not identify the developments.

Santa Monica, California-based Fremont said "it does not necessarily agree" with Ford's position, but is in talks concerning a revised $80 million investment. It said there is no assurance an agreement will be reached.

"This is most likely a negotiating ploy to gain a better price," said Theodore Kovaleff, a senior bank and thrift analyst at Sky Capital LLC in New York.

Ford did not immediately return a call to his Dallas office. Fremont did not answer calls seeking further comment.

Shares of Fremont were down $1.03, or 20.1 percent, at $4.10 in morning trading after falling as low as $3.92 earlier in the session. They began the year at $16.21.

The Ford investment is the latest to be jeopardized as a housing slump and tight credit markets force companies to renegotiate with prospective suitors.

Last week, San Diego subprime lender Accredited Home Lenders Holding Co LEND.O accepted a $296 million buyout by Lone Star Funds after the private equity firm backed out of an original $400 million takeover.

Also last week, mortgage and vehicle fleet company PHH Corp (PHH.N), said its agreement to be acquired by General Electric Co (GE.N) and Blackstone Group LP (BX.N) may fall apart.

In August, meanwhile, Home Depot Inc (HD.N) lopped $1.8 billion off the selling price for its wholesale supply unit.

HARD TO SPECULATE

Subprime lenders make loans to people with poor credit. Fremont is one of dozens to quit lending this year after defaults rose, housing prices stalled, and investors stopped buying home loans they considered too risky.

Separately, Fremont expects in mid-October to file delayed financial reports for 2006 and the first half of 2007. It hired a new auditor after Grant Thornton LLP resigned in March.

Kovaleff said the absence of current balance sheets makes it "hard to speculate" how the Ford talks would affect Fremont's future. He said he ended coverage of Fremont in August after the company failed to return seven phone calls.

The Ford group originally agreed to buy preferred stock exchangeable into Fremont common stock at $8.44 per share, and 7.1 million warrants to buy common stock at the same price.

Ford and colleagues Carl Webb and J. Randy Staff were to become Fremont's chairman, chief executive and chief financial officer, respectively. They planned to help Fremont build new lending businesses and expand its retail bank.

Fremont also agreed in May to sell its commercial real estate lending business and a stake in a loan portfolio to iStar Financial Inc (SFI.N) for $1.9 billion.

Ford used to run Golden State Bancorp Inc., which he sold in 2002 to Citigroup Inc (C.N) for $5.8 billion.