Dealings in Securities May Cost Santa Barbara S&L; $13 Million

Financial Corp. of Santa Barbara, parent firm for Santa Barbara Savings & Loan, announced Wednesday that it has lost between $10 million and $13 million on securities and futures transactions.

The news represents a sharp setback for Chief Executive Philip R. Brinkerhoff and his 2 1/2-year-old effort to restore the savings and loanto financial health. It also means that the parent firm, which made $12.9 million in the first six months of 1987, will lose money in the third quarter.

“The company has closed out its securities and futures positions which caused the losses and is reviewing the circumstances that led to the losses,” the firm said in a brief statement.

The news sent Financial Corp. of Santa Barbara’s stock tumbling $1.75 a share to close at a 52-week low of $8.75.

Brinkerhoff was reluctant to elaborate on the three-paragraph news release, saying in a telephone interview: “We’re not sure what happened. We don’t have all the facts yet.”

He did note, though, that the losses were related to the company’s investments in Treasury securities and futures contracts on those securities. (A futures contract allows financial institutions to hedge against a loss in value of such securities.)

Brinkerhoff said an internal investigation is focusing on the capital markets department, which also oversees extensive investments in mortgage-backed securities. Financial Corp. of Santa Barbara had assets of $5.41 billion on June 30, including $2.45 billion in securities backed by mortgage loans.

The 13-person capital markets division is headed by 32-year-old James Thompson, an executive vice president and two-year employee of the company. Thompson could not be reached for comment.

Thompson “advised me of this loss on Tuesday afternoon, and we worked until 11:30 that night to button down the numbers,” Brinkerhoff said. The news was released at 5:18 a.m. Wednesday.

“I’m not sure anger is the right word,” Brinkerhoff said when asked his reaction to the sudden turn of events. “Obviously, I’m terribly upset in light of all the work we have done in the last couple of years.”

A pillar in the Santa Barbara County business establishment for decades, Santa Barbara Savings & Loan ranks as the state’s 17th-largest savings and loan firm. The company has rebounded sharply under the leadership of the 44-year-old Brinkerhoff, a Harvard Law School graduate with an impressive background in the savings and loan industry.

Financial Corp. of Santa Barbara sustained heavy losses in the early 1980s, when it was buffeted by bad loans, high interest rates and management turmoil.

During one stretch from 1981 to 1984, the firm lost almost $81 million, and its shareholders’ equity was nearly wiped out.

Under Brinkerhoff, the company reported record earnings of $19.1 million in 1986 and boosted capital through a $62.7-million sale of common stock and notes.