Worst Performance Ever : Orange County S&Ls; Post $920- Million Loss in ’87
In their worst performance ever, Orange County savings and loans posted a combined loss last year of $920 million, or nearly 14% of the record $6.8-billion deficit recorded by S & Ls throughout the nation.
For both the county and the nation, the losses are dramatic evidence of how a few problem institutions have overwhelmed the rest of the industry.
The nation’s 20 sickest thrifts lost nearly $5 billion last year, according to Federal Home Loan Bank Board figures compiled and released Friday by Alex Sheshunoff & Co., an Austin, Tex., consulting firm.
Orange County’s 14% share of the nationwide loss is out of proportion with its size. The county’s combined S & L assets of $62 billion represent only 5% of the U.S. total of $1.3 trillion.
While the county’s loss tracks the nation’s, California thrifts in general did well last year, posting combined net income of $301 million.
Among Orange County’s 38 S & Ls, the red ink flowed mostly from eight ailing thrifts operating under direct federal regulatory control. Those S & Ls posted combined losses of more than $1 billion.
The biggest loss--$468 million--was posted by the nation’s largest thrift, American Savings & Loan, which is operated from the Irvine headquarters of parent company Financial Corp. of America.
Excluding those eight institutions, the county’s 30 other S & Ls show a combined profit of nearly $132 million. Industry consultants note that most Orange County thrifts are financially healthy, well-managed institutions.
Yet according to Sheshunoff, the bank board figures call attention to a troubling year at some Orange County S & Ls:
Of 22 profitable thrifts, 13 reported lower earnings for 1987 than 1986. Their combined earnings were $137 million.
Of 16 S & Ls that posted losses, only three showed improvement over 1986 results. While the eight government-supervised S & Ls lost more than $1 billion, the other eight unprofitable institutions posted a combined deficit of only $6 million.
Deposits at all savings and loans are insured up to $100,000 per account by the Federal Savings & Loan Deposit Insurance Corp. Executives at some troubled S & Ls, such as Beverly Hills Savings in Mission Viejo, have urged depositors to keep their deposits below the $100,000 threshold.
After results for the first nine months of 1987 were released in January, industry leaders and consultants predicted that 12-month earnings would be lower, primarily because higher interest rates in effect from April through the October stock market crash had slowed demand for home loans.
“I sit here and look at these numbers, and they’re just disastrous,” said Stephen Skaggs, vice president of Sheshunoff.
Two Thrifts Seized
The figures could have been worse. The Orange County results do not include losses at two troubled thrifts--Equitable and South Bay--that were seized, closed and sold last year by regulators.
The huge losses are prompting renewed criticism of the bank board’s controversial management consignment program. Unveiled three years ago, the program keeps insolvent S & Ls afloat and operating under new management in an effort to solve their problems without liquidating the institutions.
“I just don’t see the (consignment program) helping very much,” said Barry Rubens, chief executive officer of California Research Assn., a Santa Monica industry consulting firm.
Gerry Findley, a Brea-based consultant, said he believes the government should get out of the business of running S & Ls. “Losing money because of bad loans is one thing, but losing money because of operations is something else,” he said.
And Skaggs said the program is just a bandage approach that is “not solving the problems.” But he said he doesn’t believe the program should be abolished, mainly because the industry still has so many problem thrifts.
Rubens said that, at the end of September, nearly 36% of the nation’s 3,178 S & Ls were insolvent or operating with less than the required amount of capital.
Backs Program
The bank board has stood behind its program, conceived at a time when growing failures put a strain on its FSLIC unit.
Last year, FSLIC’s insurance fund was declared insolvent and received congressional approval to raise new capital. Still, some industry consultants are not reassured.
“There’s not one thing I can look at and find encouraging for the thrift industry,” said one industry consultant. “So I’m inclined to think it’s going to get worse, and it seems like something’s going to have to be done.”
The consultant, who requested anonymity, worried that depositors at some point may simply withdraw their money from S & Ls because the risk may outweigh the higher interest rates offered by many thrifts.
Troubled S & Ls in particular have been paying higher rates to attract deposits.
“All the (consignment program) shops feel they have to pay the highest interest rates because people won’t keep their deposits in there unless they do,” Rubens said. “That only exacerbates the problem because it creates additional costs and magnifies the loss. It also puts pressure on the rest of the industry to pay higher rates.”
Last year set new records for regulatory actions against Orange County S & Ls. Besides closing Equitable and South Bay, federal regulators seized North America Savings, Perpetual Savings and First California Savings and put them into its consignment program.
In addition, state and federal regulators installed a new management team at Pacific Savings Bank without actually seizing the S & L. And in an unprecedented move, state regulators placed a healthy institution, Universal Savings, into conservatorship amid fears that $10 million was being diverted to the chairman of its Australian parent company. The S & L eventually won an unusual court victory tossing out the conservatorship.
Since Beverly Hills Savings became the first S & L to be placed in the consignment program in early 1985, regulators have seized 11 other Orange County thrifts. Four have been sold or closed, including Ramona Savings, which regulators shut down on Feb. 27.
ORANGE COUNTY-BASED SAVINGS AND LOANS As of Dec. 31, 1987
Total % Change 1987 Net % Change Assets Since Income Since Savings and Loan (millions) Dec. 86 (thousands) Dec. 86 American S&L; ** $33,841 -0.2 -$467,553 -581.6 Lincoln S&L; 4,293 19.1 28,026 -43.8 Far West S&L; 3,757 23.1 21,502 -4.5 Household Bank 3,391 59.2 7,493 423.6 Downey S&L; 3,212 28.8 33,191 -41.7 Mercury S&L; 2,379 0.0 7,819 -17.3 Western Financial 1,755 42.0 9,620 -9.9 Beverly Hills Savings * 1,684 -14.2 -151,410 51.7 Pacific Savings Bank ** 1,120 -32.5 -113,062 -591.1 Standard Pacific Svgs (1) 953 n/a -115 n/a Butterfield S&L; * 602 -7.0 -48,018 -127.5 American Diversified * 546 -10.9 -111,628 72.9 United California Savings 509 16.6 807 -92.0 Newport Balboa Savings 470 38.5 4,714 -26.8 Guardian S&L; 366 25.6 6,094 68.1 Fullerton S&L; 329 3.5 4,363 -5.4 San Clemente S&L; 250 25.0 1,449 -34.6 Universal Savings 223 -14.1 -890 -219.8 First California Savings * 205 n/a 2,330 2,674.0 Charter Savings Bank 197 25.0 1,998 281.3 Malibu Savings Bank 165 29.6 464 -41.7 Sterling S&L; 161 44.1 3,501 48.0 Westport Savings 152 19.7 1,485 -34.0 Western Empire S&L; 120 -3.0 -3,418 -436.4 Huntington S&L; 102 -5.3 407 37.5 North America S&L; 101 -56 -111,173 -1,240.0 Constitution S&L; 87 -7.6 1,436 235.5 Irvine City S&L; 79 29.0 203 -73.4 Security S&L; 78 -0.2 -226 81.0 Cornerstone S&L; 67 46.2 202 -43.4 Beach Savings Bank 60 26.9 54 64.0 Plaza S&L; 55 -4.0 -283 -123.7 Delta Savings Bank 52 23.3 -122 -162.2 Perpetual Savings * 46 -28.1 -7,567 -2,777.0 Ramona S&L; (2) 45 -62.8 -41,087 -377.3 Sherman Oaks Savings (3) 34 7.6 -413 -399.3 American Interstate 34 48.2 116 18.4 Pioneer S&L; 21 7.0 -270 -33.0 Orange County Totals $61,541 n/a -$919,961 n/a State Total $346,985 11.0 $300,901 -75.6
* S & L in the management consignment program.
** S & L essentially operated by regulators.
(1) Formed in 1987 from assets of failed South Bay S & L.
(2) Closed by regulators on Feb. 27. Previously in consignment program.
(3) Formerly Westmark Savings in Newport Beach. Main office will be moved to Sherman Oaks once regulatory approval is given for a new office there.
Source: Alex Sheshunoff Information Services, Austin, Texas
