Columbia Savings’ Net Dives 95% in Quarter
Columbia Savings & Loan, the financial institution in Beverly Hills that advertises itself as the best-managed thrift in the country, earned $5.26 million in the first quarter of 1988, down 95% from the high-flying level of a year ago.
The unexpectedly low earnings follow on the heels of a $34.8-million loss in the fourth quarter of 1987 that resulted largely from losses sustained in the October stock market crash. Columbia is one of the few thrifts that invests heavily in equity securities.
Despite the lackluster results, Columbia Savings is well capitalized. Its shareholders’ equity on March 31 totaled $629 million, or 5.43% of total assets, ranking it among the best of the nation’s well-managed thrifts.
Meanwhile, company officials confirmed that Columbia Savings is expected to announce shortly that it has settled a long-running controversy over the annual pay package of its chief executive, Thomas Spiegel.
The details are expected to be in the firm’s proxy statement, which should be sent to shareholders in the next few days, company officials said. The dispute centers on regulatory objections to a $9-million compensation package that Spiegel received in 1985, including a deferred $5-million retirement payment.
The dispute has been in limbo since April, 1986, when regulators ordered Columbia’s board of directors to pay Spiegel only his $960,000 annual salary. To resolve the matter, the company hired an outside consulting and compensation firm to evaluate what a fair compensation package should be.
Reserve Nearly Doubles
Highly profitable in recent years, Columbia is well known as one of the few savings and loan firms that has invested successfully in the market for high-yield bonds, also known as junk bonds. Though Columbia will not identify its individual stock and bond investments, the company’s lists $4.25 billion of investment securities among its total assets of $11.6 billion.
According to its first-quarter results, Columbia had a charge of $17.5 million as a provision for losses on investment securities and loans, nearly double the $9.9 million in the first quarter of 1987 when the company earned a whopping $98 million.
“Obviously, they’re nervous about the quality of some of their high-yield bonds,” said Jerome I. Baron, financial analyst for Prudential-Bache Securities in New York.
But Columbia officials say they are merely adding to general reserves when times are good rather than bad. “We just feel it’s prudent to build reserves now for events that no one can foresee,” said Lawrence K. Fish, Columbia’s president and chief operating officer.
In a statement, though, Fish suggested that the slim first-quarter earnings will not be a one-time occurrence, noting that “1988 does not appear to be a year of significant profitability for Columbia.”
A major difference between this year and last comes from Columbia’s gain on the sale of loans and mortgage-backed securities. Columbia reported income of $87.3 million from these sales last year at a time when interest rates were continuing to fall, compared to similar income of $4.86 million this year.
Other Losses Reported
The general move upward in interest rates since last spring has choked off a valued source of income for many thrifts, which profited by selling fixed-rate assets as rates fell. Further evidence of the changing interest rate environment emerged Wednesday as the nation’s major commercial banks raised their prime rates to 9% from 8.5%.
Columbia also reported losses on securities sales and its commercial real estate operations, both of which were profitable last year.
Securities sales losses of $1.81 million resulted mostly from specific writedowns in its bond portfolio, company officials said, while red ink on real estate of $139,000 reflected losses on shopping center, office building and hotel operations.
Columbia’s stock closed Wednesday at $6.875, a share off 25 cents.
