FCA’s Losses Cut Sharply in Quarter : Interest-Rate Drop Cited; Ahmanson Net Hits All-Time High
Financial Corp. of America announced Monday that its money-losing ways continued in the second quarter, but it noted that the tide of red ink had receded considerably because of dropping interest rates.
Irvine-based FCA, the nation’s largest savings and loan holding company, said it lost $17.9 million in the three-month period ended June 30, following a $38.2-million loss in the first quarter and a $512-million loss in the fourth quarter of 1984. The fourth-quarter red ink resulted principally because FCA added $422 million to its reserves for loan losses.
The latest loss, though relatively modest, comes at a time when FCA’s large competitors are reaping record profits. Many industry experts say the savings and loan industry is headed for its most profitable year in history.
H. F. Ahmanson & Co., for example, reported Monday that April through June was the best quarter in its history. Ahmanson, Los Angeles-based parent company of Home Savings of America, said earnings soared to $55.3 million, more than triple what it earned in the second quarter of 1984.
Large Interest Spread
The big profit increases are primarily the result of financial institutions paying depositors less for their savings because short-term interest rates have been dropping sharply. Home Savings’ deposit costs on June 30 were at their lowest level in nearly six years, Ahmanson said.
FCA, which is the parent company of American Savings & Loan Assn., said its cost of funds declined to 9.51% at the end of June from 10.31% at the end of March, while its margin on funds increased from 1.18% to a near break-even level of 2.41%. (The margin measures the cost of money versus the yield on loans and investments.)
“We’ve been getting a tremendous break because of the lower interest rates,” FCA Chairman William Popejoy said in a phone interview. “Our job is to make sure we take full advantage of that drop and restructure the company.”
FCA’s future continues to be clouded by its large portfolio of troubled loans, known as scheduled items, which rose 22% in the quarter to $1.56 billion. Popejoy said the scheduled items--which include delinquent loans and foreclosed properties--should peak at $1.8 billion in the third quarter.
“If they could just sell half of those loans, they could be back in the black,” said Jerome Baron, an analyst at First Boston Corp. in New York.
Though FCA has a program to sell these problem loans to other investors, progress has been slow lately because real estate prices are flat and the best properties have already been sold, Popejoy said. “The sales program is starting to slow down, and that worries us,” he said. “It’s stuck in second gear.”
Elsewhere in the industry, the bulge in second-quarter profits has not been reflected in higher stock prices, a situation that surprises and frustrates industry insiders. “I’m amazed at the way these stocks are being pounded,” Baron said. “It’s frightening.”
Ahmanson’s stock, for example, fell $1 on Monday to close at $30.625--down more than the 37.5 cents that FCA’s stock dropped. It closed at $6.875.
Last Thursday, CalFed Inc. and Home Federal Savings of San Diego reported record quarterly earnings, but CalFed’s stock fell $1 and Home Federal’s fell 75 cents.
One problem is that investors remain wary about the prospect of higher interest rates.
“There is some trepidation that rates have bottomed out and all they can do now is go up,” said Dennis Jacobe, research director at the U.S. League of Savings Institutions, a Chicago-based trade group.
“Lots of portfolio managers are taking their money and running,” Baron said. “A lot of those guys are from Missouri, and they have burned on S&L; stocks before.”
Still, industry analysts feel differently: They believe that the industry will have its most profitable year ever in 1985, even though hundreds of savings and loans remain in financial trouble.
