FCA Cites Bad Loans in Projecting Loss of Over $100 Million in Quarter
As a result of its strategy to identify and correct problem loans, Financial Corp. of America is expecting fourth-quarter losses of more than $100 million that will mark the worst three-month results in the firm’s history, FCA Chairman William J. Popejoy said in an interview Wednesday.
Popejoy also said the company has officially moved its headquarters from Los Angeles to Irvine, where he has been working the past few months along with a small support staff.
The corporate headquarters move involves the transfer of only 30 workers, Popejoy said. All costs involved in the move to 18401 Von Karman Ave. will be more than offset by subletting the company’s old headquarters office space on the 15th floor of a Wilshire Boulevard high-rise.
Besides putting him close to his Newport Beach home, the move means Popejoy is only a short drive from John Wayne Airport, from which he commutes two to three times a week by company plane to the Stockton headquarters of American Savings & Loan Assn., an FCA subsidiary.
Most of FCA’s 6,000 employees either work at American’s Stockton offices or at support offices scattered throughout Los Angeles and Orange counties.
Those who have moved from the Wilshire Boulevard office to Irvine include public relations, legal and other support personnel.
FCA will post the unexpectedly high losses in the fourth quarter because it may have to “more than double” its reserves for possible future loan losses, Popejoy said.
All additions to these reserves, which now stand at $90.5 million, cut directly into the profits that the company makes on its operations.
Popejoy also said an internal task-force investigation has unearthed “many major loans” that are overvalued and must be written down to reflect the true value of the property. “We found that the properties were being carried (on our books) in excess of their market value,” he said.
Worse Than Expected
“It was worse (than we had expected),” he added.
As a result, fourth-quarter results will “at least” be as bad as the record-setting second-quarter loss of $107 million that resulted when an accounting dispute with the Securities and Exchange Commission forced FCA to restate its earnings, Popejoy said.
A loss of that magnitude means that FCA will lose--based on its nine-month loss of $78.4 million--a minimum of $185 million in 1984.
“This is the bad news,” the FCA chairman and chief executive said in a phone interview. “The good news is (that) the bad news should be behind us soon.”
The size of the loss is likely to come as a surprise to Wall Street, where estimates of the company’s 1984 losses have been well below $185 million. Indeed, Popejoy suggested that his remarks were an effort to defuse any surprise when the company issues its annual earnings at the end of February.
FCA had a horrible year in 1984, due in part to a $6.84-billion deposit outflow in the third quarter that led to the ouster of Charles Knapp as chairman and chief executive last summer and nearly led to a government takeover. Popejoy replaced Knapp last Aug. 28.
Knapp was anathema to federal regulators, who viewed his fast-growth and aggressive fixed-rate lending policies as a grave threat to the Federal Savings and Loan Insurance Corp., the government agency that insures customer accounts up to $100,000.
Since he took over, Popejoy has taken a series of actions that seem to have restored depositor confidence in the financial institution. Deposits, for example, were up more than $2 billion in the fourth quarter.
Investor confidence is another matter, however, and it hinges to a large extent on the true quality of FCA’s loan portfolio.
“The real question now from an investor’s point of view is: Is this it?” said Thomas Klingenstein, an analyst for Wertheim & Co. in New York. “Have they really taken all their lumps in 1984?”
Popejoy obviously thinks so, suggesting that the worst is over. “We don’t expect there will be major adjustments (on bad loans) in the future,” he said.
He also noted that the internal loan investigation, begun several months ago, is now 90% complete and found “no wholesale evidence of wrongdoing” in company lending policies.
Appropriate authorities would be informed in any individual cases of fraud, he added, but he declined to elaborate.
