First RepublicBank Will Report $1.5-Billion Loss for Quarter

Troubled First RepublicBank Corp. of Dallas said Tuesday that it will report a $1.5-billion first-quarter loss, wiping out the net worth of the largest banking company in Texas, and announced that its chairman and chief executive resigned at the request of federal regulators.

Gerald W. Fronterhouse, 51, quit Tuesday and was replaced by Albert V. Casey, a well-regarded executive who is credited with helping turn American Airlines around in the 1970s. Casey, 68, has broad executive experience including stints as postmaster general and president of Times Mirror, parent company of the Los Angeles Times.

First RepublicBank received an emergency $1-billion loan last month from the Federal Deposit Insurance Corp., which has agreed to insure all deposits at the bank, even if they exceed the normal limit of $100,000. The federal bailout, which followed a $656.3-million loss for 1987 and a deposit run in February of more than $600 million, included an agreement that bank management would step down if asked by regulators.

The size of the projected $1.5-billion first-quarter loss surprised financial analysts and is nearly three times larger than the company earlier had estimated. It is believed to be the sixth-largest loss ever reported by a U.S. corporation.

The loss stems largely from $1.5 billion in writedowns and reserves for possible losses on the bank’s real estate portfolio. The provision also includes a $231-million increase in the allowance for loan losses for non-trade-related loans to less developed countries.

First RepublicBank’s reserves for such problem loans now stand at 50% of the total debt. At year-end, total loans to less developed countries stood at $1.2 billion and the non-trade-related portion of that debt was a smaller, unspecified amount, First RepublicBank Senior Vice President Joseph C. Bowles said. First RepublicBank, the nation’s 13th-largest banking company, had nearly $4 billion in bad loans, primarily related to oil and real estate, at the end of 1987.

The projected $1.5-billion loss wipes out First RepublicBank’s shareholders’ equity, which was $1.25 billion on Dec. 31. As a result, First RepublicBank is technically insolvent, although it continues to operate backed by its FDIC guarantees protecting depositors. The guarantees have reassured customers, Bowles said, adding that the bank has seen “positive signs” of returning business, particularly among corporate accounts.

The ailing bank is in the process of preparing a plan for restructuring and raising new money that it will soon present to FDIC, which recently completed a two-month examination of the bank.

Casey said Tuesday at a news conference in Dallas that first-quarter results would mark “the end of the writeoffs, clearly and definitely.” Comptroller of the Currency Robert L. Clarke said he did not think that the bank would need any more federal help.

First RepublicBank spokesman Bowles said Clarke said at the news conference “that federal regulators came to the conclusion that a change of management was necessary, and when they approached First RepublicBank they found that Mr. Fronterhouse had reached the same conclusion.” Regulators made their decision late last week and on Saturday approached Casey, who is the Ann Cox Distinguished Professor of Business Policy at Southern Methodist University’s Edwin L. Cox School of Business in Dallas, he said.

Fronterhouse explained in a statement that he “made the decision to step aside at this time because it is in the best interests of this institution and the community that I do so.” The 51-year-old Fronterhouse has spent his entire 26-year banking career at First RepublicBank and at RepublicBank, which last year merged with Interfirst, another big Texas bank.

A Symbolic Step

Praising Fronterhouse for “making a great personal sacrifice by resigning,” Casey said his goal “is to return to profitability and to provide the state of Texas with a stronger and much-needed banking institution.”

Banking consultant Frank Anderson characterized Fronterhouse’s resignation as “like a football coach after a losing season. You didn’t make all the mistakes, it’s more symbolic. . . . He didn’t make all the bad loans but he has to take some of the heat.”

Casey receives high marks from former colleagues and analysts as a financial whiz who also works well with people, inspiring employees to work as hard as he does.

“Al Casey is clearly an outstanding executive who has had very broad experience,” said Robert F. Erburu, chairman and chief executive of Times Mirror, where Casey served as president from 1966 to 1974. “He is well-versed in problem solving and possesses skills as an outstanding motivator of people combined with special strengths in financial matters.”