FCA Estimates Loss of Between $500 Million and $700 Million in ’84
Financial Corp. of America announced Friday that it is now facing a loss of between $500 million and $700 million in 1984, far higher than the company had been predicting.
The Irvine-based holding company of American Savings & Loan Assn. said the large increase will result from loan portfolio problems that are much worse than had been expected only five weeks ago. Since FCA lost $78.4 million in the first nine months of 1984, that means the fourth-quarter loss will be at least $422 million.
The loss will make a major dent in shareholders equity, which stood at $703 million on Sept. 30, 1984. It would also be the second-largest yearly loss ever sustained by a U.S. financial institution. Continental Illinois Corp. tops the list with its loss of $1.09 billion in 1984.
FCA announced the loss estimates at the behest of the New York Stock Exchange and the Securities and Exchange Commission, company Chairman William J. Popejoy said in an interview. Both agencies wanted to know why the company’s stock fell sharply in heavy trading Thursday.
Blow for Company
The news is a blow for the ailing savings and loan holding company, which has been struggling to regain its equilibrium since last summer, when it suffered a crisis of confidence and the ouster of former Chairman Charles W. Knapp.
Investors took the latest news well, however, while Popejoy and his supporters stressed that the losses are necessary to cleanse American Savings of its bad loans.
Almost all of the expected losses will result because FCA has to increase its reserves to handle the problem loans, Popejoy said, but there will be some losses due to “accounting adjustments.” He declined to elaborate.
Industry observers believe that FCA is now holding its breath to see how depositors--large and small, insured and uninsured--take the news. Popejoy said deposits were stable Friday. Customer accounts up to $100,000 are insured by the government.
Several hours after the announcement, the nation’s top regulatory agency for savings and loans issued a statement strongly supporting FCA’s management.
“We have full confidence in the American Savings management team led by Mr. Popejoy,” the Federal Home Loan Bank Board said. “We are pleased Mr. Popejoy has sought to identify the problems he and his team inherited. We also are pleased that American Savings is aggressively seeking to address its problems.”
Can Handle Outflow
Popejoy said FCA will expand the work hours at its branch offices to answer depositor questions. American’s 122 branches statewide will be open from 10 a.m. to 2 p.m. today and from 9 a.m. to 8 p.m. next week. The branches are normally closed on Saturday and open during the morning and afternoon Monday through Friday.
Popejoy said an estimated $2.5 billion to $3.5 billion in uninsured deposits are vulnerable to withdrawal, but he noted that the company has ensured that both liquidity and borrowing capacity are sufficient to handle any outflow.
In the third quarter of 1984, Stockton-based American Savings lost 27% of its deposit base--$6.84 billion--before confidence was restored. American now has $20.3 billion in deposits, still tops among the nation’s S&Ls.;
Ironically, because Friday’s news wasn’t as bad as had been rumored earlier in the week, investors reacted by driving up the price of the stock. The price closed at $6.50 a share, up 50 cents, on extremely heavy volume of 2.77 million shares.
Earlier this week, unsubstantiated reports sweeping through investment and lending circles were claiming that FCA’s losses would be between $1 billion and $2 billion.
Many of the rumors emanated from a housing conference in Utah, where some of the nation’s best-known lending officials were gathered.
In late January, Popejoy suggested in an interview with The Times that FCA’s year-end loss would be at least $185 million. He also said the results would be released by the end of February.
Last week, the company delayed announcement of the results, which set off widespread speculation that FCA’s problems with its loans were worse than had been originally feared.
“This tells me that Popejoy didn’t know what was going on several weeks ago, even though I don’t think he was trying to mislead anyone,” said Thomas Klingenstein, analyst for the New York investment banker Wertheim & Co.
Popejoy said loss estimates have worsened “dramatically” in recent weeks as the company and its outside auditors have had a chance to review new appraisals on many large building projects. Many of the loans are on troubled condominium and office-building projects throughout the Sun Belt, he said.
Had to Make Estimate
Popejoy said the company was forced to make a loss estimate publicly after the SEC and the NYSE inquired about trading in the stock, which fell $1.625 a share on a volume of 1.5 million shares Thursday.
“We would have preferred to wait” until the final results could be released before making a statement, Popejoy said. The final results are still expected before the end of March, he added.
Popejoy admitted that it was possible that some bad news had leaked out because 200 people are working on cleaning up the problem loans. A spokesman for the NYSE said a routine inquiry would be made into Thursday’s trading.
Supporters of Popejoy were quick to blame FCA’s present problems on Knapp, who resigned under pressure from federal regulators last summer.
Knapp could not be reached for comment Friday.
Anthony Frank, chairman of San Francisco-based First Nationwide Financial Corp., said the problems were due to the “previous recklessness of past management,” while the bank board statement pointed out the problems were “inherited.”
“The industry is pleased,” said Frank, who was an outspoken critic of the fast-growth policies that led regulators to oust Knapp. “The problems are over with now and the air is cleared.”
