Problem Loans Cause Loss for E. F. Hutton

E. F. Hutton Group, battered by problem loans on top of a financial scandal earlier in the year, reported a $12.2-million loss during the fourth quarter of 1985 and a 17.1% drop in profits for the full year.

The fourth-quarter loss contrasted with a profit of $24.3 million a year earlier. Revenue rose to $869 million from $863.9 million.

The loss resulted from a $40.3-million reserve established to cover potential losses on mortgages and a note receivable from an unidentified corporate customer. That is higher than the $25.3-million reserve that the company disclosed in December.

For all of 1985, Hutton Group posted net income of $43.7 million, compared to $52.7 million during 1984. Revenue reached $3.1 billion, compared to $2.68 billion in 1984.

The earnings report covered a year in which Hutton was shaken by the fallout from a guilty plea by its E. F. Hutton & Co. brokerage unit to 2,000 counts of mail and wire fraud in connection with overdrawing its checking accounts.

“We obviously faced extraordinary pressures in 1985,” said Robert Fomon, Hutton’s chairman and chief executive. “We are gratified that, despite these pressures, we achieved both record operating revenues and a decline in our operating expense growth rate.”

In January, Hutton announced a major reorganization of its operations and shuffled several of its top executives in an attempt to improve the company’s efficiency.

The reserve for problem loans included $14 million to cover potential losses on mortgages bought from First American Mortgage of Baltimore for investment and resale to other customers.

First American collapsed after E. F. Hutton Mortgage Corp. of Little Rock, Ark., and 10 other firms sued it in November on fraud charges, and it has sought court protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

Hutton also said it increased by $15 million its previously announced $11.3-million reserve to cover an outstanding note it holds, because of a revised valuation of the collateral underlying the note.

Hutton’s fourth-quarter results include a $23.2-million gain from the sale of its E. F. Hutton Credit Corp.

For detailed data and results of other companies, please see tables, Page 13.