B of A Seen Facing More Loan Losses : Portfolio Problems Range From Farms to Brewers to Shippers
A few hours after BankAmerica announced a stunning $338-million second-quarter loss on Wednesday, President Samuel H. Armacost was asked to identify the source of the bank company’s problem loans.
“Have you got a globe?” he asked. He wasn’t being facetious.
America’s biggest bank has America’s biggest problem loan portfolio, totaling more than $3.5 billion. Its troubled credits run the gamut from San Joaquin Valley farmland to Mexican breweries to Greek shipping firms.
In announcing the $338-million loss--its first since it began reporting quarterly earnings in 1970--BankAmerica said the majority of the deficit was caused by an $892-million set-aside for bad loans. For all of last year, its provision for loan losses was $859 million.
More Large Losses Expected
And since BankAmerica’s actual second-quarter loan write-offs only totaled $382 million, the huge provision was seen as foreshadowing very large losses in as yet unidentified areas.
Armacost himself cautioned that this week’s dramatic announcement of the huge loan-loss provision will not end the company’s troubles: “Time cures the loan-loss problem, not dramatic events,” he said in a telephone interview.
Bank of America, BankAmerica’s principal subsidiary, faces losses in nearly every major category of its $82-billion loan portfolio, including agriculture, real estate, shipping and foreign lending. Consumer loan losses are at their highest levels in history, and even loans to other financial institutions are going sour.
World’s Biggest Farm Lender
B of A’s problem borrowers include Don Jackson, a 45-year-old farmer and rancher from Traver, Calif., who filed for bankruptcy late last year with the bank holding four of his notes, including a $1.7-million credit to help him fend off foreclosure by the Federal Land Bank.
B of A, probably the world’s biggest farm lender with $2.2 billion in loans outstanding, today owns 94,000 acres of California farmland acquired through foreclosure. Senior B of A economist Duane A. Paul predicts further foreclosures.
“We try to work with the owners as long as we can,” Paul said. “In some cases, that just doesn’t work out.”
The bank may find itself awash in a sea of Mexican beer as well. B of A is the biggest foreign lender to two major Mexican breweries with financial troubles, Cerveceria Moctezuma (which exports the Dos Equis brand) and Cerveceria Qualtemoc (Carta Blanca, Bohemia), with an exposure estimated at $106 million. Analysts expect that a major portion of that investment will have to be written off.
B of A loans to private industry in dozens of other foreign countries are at risk, analysts and bank credit officers said. Countries identified as posing special current problems include Bolivia, Paraguay, Chile, Nigeria, the Sudan, Zaire and the Ivory Coast.
“They have a lot of small pieces in a lot of small countries around the world,” said one foreign lending specialist at another bank. “A lot of people focus on the big numbers, but the little ones add up.”
Another area singled out as a disaster for B of A was shipping, particularly Greek-flag carriers. Total U.S. bank exposure to the badly depressed world shipping industry is estimated at $20 billion. B of A was an aggressive shipping lender but was relatively slow in taking charge-offs when the industry hit a severe slump beginning in 1979, said bank analyst George M. Salem of the Wall Street firm of Donaldson, Lufkin & Jenrette.
Closer to home, Bank of America faces substantial losses from a variety of commercial and residential real estate projects. For instance, the bank provided a construction loan of about $50 million to the Pacific Park Plaza condominium project in Emeryville, Calif., just across the bay from B of A’s San Francisco headquarters. The 583-unit luxury condo project was a joint venture of a prominent San Francisco developer and the Penn Mutual insurance company.
According to a Los Angeles real estate broker familiar with the project, the developers’ plans to sell $150,000 condo units at a rate of 25 a month proved overambitious. A condominium glut pushed prices down and forced B of A to absorb losses when it lowered interest charges to below-market rates to move the units.
The bank also took a bath on the Capistrano Royale luxury home development in San Juan Capistrano in southern Orange County and on condominium, hotel and office developments in Texas and Florida, brokers and bankers said.
Since B of A is also one of the nation’s largest single-family home mortgage lenders, it is suffering from high mortgage delinquency rates. National statistics show that home loans 30 days or more past due reached 6.19% in this year’s first quarter, the highest rate since the Mortgage Bankers Assn. began keeping records in 1953.
As of June 30, the bank owned a total of $395 million in foreclosed real estate, compared to $357 million a year ago.
The bank does not discuss problems with loans to individual countries or specific projects. But Armacost announced six weeks ago that the loan-loss problems would result in a break-even quarter for the bank. That estimate proved far too optimistic.
“During this period, and especially in June, evidence has been accumulating that there is a growing weakness in important sections of the economy which particularly affect our portfolio. Disinflation, dollar volatility, the uneven recovery and its questioned sustainability have all had their impact,” the bank’s chief executive said in a prepared statement accompanying the earnings release Wednesday.
“We’re taking some real blows,” he said in the interview.
Times staff writer Victor Zonana contributed to this article.
