Bank Due for Takeover Sacks Auditing Firm
Under orders from federal regulators, troubled United Bank in San Francisco, which has agreed to be purchased by Great American First Savings Bank, on Wednesday fired its independent auditors after federal banking officials claimed that the auditors understated the bank’s nearly $6 million in loan losses last year.
The auditors, San Francisco-based KMG Main Hurdman, promptly criticized the Federal Home Loan Bank Board’s conclusion that there had been insufficient “independent corroboration” of the bank’s loan reserves.
“We disagree with the decision,” said Gene Matteucci, partner-in-charge of KMG Main Hurdman in San Francisco. The firm was notified of the action Wednesday, he added.
The action will not affect Great American’s plans to purchase United Bank, according to Great American spokesman Ken Ulrich.
“Great American continues to make its own independent analysis of the company,” said Ulrich, adding that the San Diego-based company is “looking at what’s behind the numbers and making our decisions on United.”
Amounts Not Disclosed
Federal Home Loan Bank Board officials would not comment on the action, and United Bank officials did not disclose by how much the loan losses may have been understated.
United Bank reported a net loss of $10.6 million for the nine months ended Sept. 30 after it increased its provision for loan losses by nearly $4.2 million in the third quarter.
When it agreed to be purchased by Great American last month, United Bank disclosed that further loan losses were anticipated in light of state and federal regulators’ suggestions that additional reserves be established.
United Bank lost about $1.5 million last year, primarily because it established a nearly $6-million reserve to cover troubled loans.
Matteucci would not comment on whether KMG Main Hurdman will appeal the order that it be fired as United Bank’s auditors, as is the firm’s right under federal regulations.
If the firm doesn’t appeal, or if it makes an unsuccessful appeal, then new auditors will re-examine and restate United Bank’s 1984 financial records “as necessary,” the bank said Wednesday.
United Bank’s board authorized management on Wednesday to select new independent auditors for the year ending Dec. 31, 1985. Bank officials said they will do “whatever is necessary” to bring 1984 and 1985 financial statements into compliance with regulatory requirements and “sound accounting practices.”
