FSLIC Investments Not Written Off : Earnings Up at Great American and CalFed
CalFed and Great American First Savings Bank announced increased net earnings for the second quarter Thursday, but the thrifts did not write off their investments in a recently discontinued federal insurance fund for savings and loans.
The parent companies of the nation’s two largest S&Ls;, American Savings and Home Savings of America, have said they intend to write off their investments in the secondary reserve fund of the insolvent Federal Savings and Loan Insurance Corp. when they report second-quarter results.
CalFed, parent of California Federal Savings & Loan of Los Angeles, reported second-quarter earnings of $48.2 million, up from $44.5 million in the same period last year. For the first half, the financial services firm posted net earnings of $93.5 million, compared to $81.1 million in the first half of 1986.
CalFed President and Chief Executive George P. Rutland attributed the increase to improved net interest income from the company’s S&L;, gains on loan sales and a “brisk volume” of residential, consumer and commercial loan originations.
Great American First Savings Bank of San Diego recorded net earnings of $25.6 million, compared to $23.2 million in the second quarter of last year. Net earnings jumped to $55.6 million in the first half of the year from $39.3 million in the same period last year.
The company noted that net interest income, after loan-loss provisions, grew by $8.6 million compared to the second quarter of last year.
No ‘Way, Shape or Form’
CalFed did not write off its $16.1-million investment in FSLIC’s secondary reserve fund, Rutland said in an interview, because of the likelihood that Congress will pass legislation providing additional funding to FSLIC and will require repayment of the secondary reserve fund.
However, he said, the company did comply with the Federal Home Loan Bank Board’s directive that the writeoff be taken for regulatory accounting purposes, which can be more strict than the type of accounting used for disclosure to public shareholders.
As for Great American First’s $7.9-million investment, “we just flat didn’t write it off in any way, shape or form,” spokesman Kenneth G. Ulrich said.
The largest investment in the secondary reserve fund belongs to Great Western Financial, with $49.1 million. “Our plan at this time is not to write it off,” said Ian Campbell, senior vice president of the company, based in Beverly Hills.
If the writeoffs had been taken, CalFed’s second-quarter earnings would have been reduced by $8.9 million after taxes to $39.3 million, while Great American’s earnings for the period would have been $21.6 million after a $4-million reduction.
The S&L; industry was angered in May when Edwin J. Gray, then chairman of the Federal Home Loan Bank Board, said the secondary reserve fund no longer existed because the General Accounting Office had declared FSLIC to be technically insolvent. The thrifts’ investments in the $824-million secondary reserve account, which was funded by about 2,200 S&Ls; during the 1960s when FSLIC ran into money problems, previously had been carried on their books as an asset.
Couldn’t Go Back
“There’s a principle involved,” CalFed’s Rutland said. “What FSLIC has said is, ‘Well, somebody has said we’re insolvent and we’re not going to pay this particular debt, but we’re going pay the others.’ ”
A House and Senate conference committee has approved legislation that would allow FSLIC to borrow $8.5 billion and would require the agency to pay back the secondary reserve fund by allowing S&Ls; to deduct their investments from their future FSLIC premiums during a five-year period.
“If we wrote it off, we could never under accounting rules go back and put it the way it was” if Congress passed its FSLIC bailout legislation, Rutland said. If that happened, the profit would have to be reinstated in the third quarter, he said.
But if the legislation is not adopted and signed into law “within a reasonable period of time,” CalFed will restate its second-quarter results, Rutland said.
