Gibraltar Thrift Reports a Loss of $155 Million
The parent company of Gibraltar Savings of Beverly Hills, besieged by troubled commercial real estate projects, Friday announced a whopping $155-million loss in the third quarter, one of the largest losses ever for a savings and loan association.
The red ink stems from a $239-million charge in connection with loans to projects such as office buildings and shopping centers. That includes a $147-million expense that Gibraltar took when it determined that some of its commercial real estate projects were overvalued. Another major expense was a $92-million addition to reserves to cover possible loan losses.
Company officials, however, expressed optimism, saying the loss is a one-time occurrence.
Claim of Strength
“Believe it nor not, this company is much stronger after doing this,” said Herbert J. Young, chairman and chief executive of Gibraltar Financial, the parent company. “This is not going to happen again.”
Gibraltar is no longer making commercial real estate loans, Young said in a telephone interview, adding that the firm’s primary focus is once again residential real estate.
Gibraltar Financial is one of California’s oldest and largest savings and loan companies. It has more than $14 billion in assets, $7.28 billion in deposits and about 100 branch offices throughout California.
But it has been a lackluster financial performer in recent years, showing unimpressive profits at a time when its competitors’ earnings were soaring. Analysts have viewed the company as poorly focused.
Gibraltar’s problems are unrelated to stock market-related woes that have afflicted several major financial services companies this week. Columbia Savings & Loan, Gibraltar’s Wilshire Boulevard neighbor in Beverly Hills, said Wednesday it stands to lose $25 million in the fourth quarter because of losses in the stock market.
Gibraltar, however, said it no longer owns stock. It got rid of the last of its $20-million portfolio several months ago, Young said. Gibraltar earned $13.3 million in the third quarter of 1986.
The company’s actions Friday make it another in the long parade of U.S. financial institutions to report large losses after reevaluating the worth of their assets.
The most startling example was Citicorp’s review of loans to Third World countries that resulted in a loss of $2.59 billion in the second quarter of this year.
Other financial institutions hit hard in recent years include BankAmerica of San Francisco and Financial Corp. of America of Irvine. Many of these lenders, Gibraltar included, have suffered heavy losses on commercial real estate projects in areas linked to the oil industry, such as Denver, Dallas, Houston and New Orleans.
Investment Failures
One of the investments that hurt Gibraltar, Young said, is a retail-office complex in suburban New Orleans known as Galleria I. Another is a commercial office building in Dallas that is now in foreclosure proceedings.
Although Gibraltar’s loss was among the biggest ever in the industry, it is dwarfed by the $512 million quarterly loss reported by Financial Corp. of America in 1984. FCA also lost $177 million in the second quarter of 1987.
Gibraltar’s losses mean the institution has $500 million in regulatory capital, which is still within regulatory requirements. An institution’s regulatory capital is considered its cushion, or safety net, against losses.
However, with the quarterly loss, the company’s net worth or shareholders’ equity--its assets minus liabilities--has dropped 44% to $196 million. That helped drive down Gibraltar’s stock to a 52-week low of $4.50 Friday, off 62.5 cents from Thursday.
Allan Bortel, a financial analyst for Shearson Lehman Bros. in New York, said he was surprised Gibraltar took the loss “all at once.”
“This does clear the air, but it puts them on a thin equity footing,” Bortel said.
Official Not Concerned
But Robert Morris, assistant commissioner for the California Department of Savings and Loan, noted Gibraltar is an “old established company. They took a hit, but we don’t see any reason for concern.”
Gibraltar officials noted all customer deposits are insured up to $100,000 by the Federal Savings & Loan Insurance Corp., although Morris added, “I don’t recommend keeping more than $100,000 in any institution, no matter how strong it is.”
Gibraltar also said it plans to sell its consumer finance operation, known as Gibraltar MoneyCenter, which makes first and second mortgage loans through 23 offices in 12 states. It originated $345 million in loans in the first nine months of 1987.
Although company officials would not speculate on a minimum sales price, analyst Bortel said a “wild guess would be between $50 million and $100 million.” The investment banking firm of Drexel Burnham Lambert has been hired to find a buyer.
