Troubled FCA Posts Loss of $63.2 Million in 1st Quarter
Heavy losses continue to plague Financial Corp. of America as the Irvine-based savings and loan company Wednesday reported a loss of $63.2 million in the first quarter ending March 31.
FCA, whose operating subsidiary is American Savings & Loan, attributed the red ink to operating losses of $27.4 million and an addition to loan-loss reserves of $107 million. The total value of the reserve is now $1.2 billion. FCA earned a profit of $9.2 million in the first quarter of 1987.
The latest red ink follows a $225-million loss in the fourth quarter of 1987 that wiped out the financial institution’s net worth. American Savings, the nation’s second-largest S&L;, now has a negative net worth of $212 million, meaning that its liabilities exceed its assets by that amount.
“In light of the current situation, our attention is focused on recapitalizing the company,” FCA Chairman William J. Popejoy said in a statement Wednesday. “This course of action has become imperative as our shareholders’ equity continues to erode even as improvements to the operations have been ongoing.”
The future of American Savings is in the hands of the Federal Home Loan Bank Board, which is negotiating a sale of the company to a group of investors led by Robert M. Bass, a member of the billionaire Bass family of Ft. Worth. Regulators recently gave the Robert M. Bass Group 75 days to conclude the deal.
Neither regulators nor the Bass investors will comment on the progress of the negotiations. But banking industry sources believe that American Savings will be reorganized into a “good bank” and a “bad bank” if a sale goes through. This formula has been used at times to rescue failing commercial banks.
The Bass investors want to acquire the good bank, which would include American Savings’ healthy assets, its deposits and most of its 185 branch offices. In exchange, the group is expected to pump at least $500 million in new capital into the good bank.
Control of the bad bank and its troubled and questionable assets would be assumed by the Federal Savings & Loan Insurance Corp., an arm of the bank board that foots the bill when an S&L; fails. Based on the current level of FCA’s problems, such an assumption may eventually cost FSLIC a minimum of $2 billion.
Industry insiders believe that there is an excellent chance the Bass deal will go through, a sentiment echoed by bank board member Roger Martin, who has spearheaded the effort to find a buyer for American Savings.
But a number of sticking points are thought to remain, including what to do with American Savings’ $16-billion portfolio of mortgage-backed securities, how to package and sell the large reservoir of tax deductions that have accumulated from FCA’s heavy operating losses and what kind of compensation, if any, should be granted to FCA shareholders.
In his statement, Popejoy said the Bass deal “has tremendous potential for American Savings.” After FCA released its financial results, the bank board issued a short statement, saying that the losses came as “no surprise” and will have “no effect” on the Bass talks.
FCA’s assets fell to $30.6 billion on March 31, down from $33.9 billion a year ago, because the firm has been ordered by regulators to begin liquidating its mortgage-backed securities portfolio. Deposits fell $320 million in the first quarter to $16.4 billion.
