FCA Bailout May Be Best, Bank Board Member Says
A solution for Financial Corp. of America’s losses may be continued help from the Federal Savings and Loan Insurance Corp. rather than the sale of the thrift holding company, a federal regulator said Monday.
Roger Martin, a member of the Federal Home Loan Bank Board, said the agency was re-examining its strategy toward Irvine-based Financial, which owns American Savings & Loan Assn., the second-largest U.S. thrift.
“It may be cheaper for us, rather than selling it, to keep the association alive through FSLIC assistance,” Martin said in an interview.
The agency tried and failed to find a buyer for the money-losing American Savings of Stockton and also said it was considering selling some of the thrift’s 185 branches as a way to offset losses.
Some Progress
The agency still is holding discussions about possible deals for American, but Martin refused to give details. He predicted that a decision would be made in 60 days.
Martin leads the board’s effort to find a solution to Financial Corp. at the least cost to the federal insurance fund, which is also struggling with heavy losses of thrifts in Texas.
But he said lower interest rates and some progress in solving Financial Corp.’s real estate problems have improved the picture and given the agency more time to find a solution.
Since October’s stock market crash, Financial’s portfolio of mortgages and mortgage-backed securities, which are highly sensitive to interest rate changes, has improved by $2.8 billion because of the lower rates, Martin said.
“That is very important to us,” he said.
Hopes to Stabilize Firm
Three weeks ago, the board ordered Financial to sell $2.5 billion of its $17.5 billion in mortgage-backed securities to raise funds. The firm also has $8 billion in fixed-rate mortgages. Financial has been under scrutiny by regulators since 1984 and last year lost $469 million.
Financial Corp.’s management objected to the idea of selling some of the thrift’s branches. Chairman William J. Popejoy said it amounted to liquidation and was the most costly solution for FSLIC.
The solutions supported by the company’s management have called for an infusion of $1.5 billion into American Savings from FSLIC or separating the firm’s good assets and bad assets into different subsidiaries.
Either of those approaches could allow current management to remain whereas a sale would likely mean a change in management.
Martin said he hoped to stabilize Financial’s situation by keeping the company’s woes out of the spotlight and reducing by half a percentage point the interest rate the firm has to pay to borrow money.
