First Interstate Has $214-Million Loss in Quarter

First Interstate Bancorp. reported Wednesday that it lost $214.4 million in the third quarter, including a provision to cover the cost of the final element of the Los Angeles-based banking company’s restructuring program.

The loss reflects an addition of $180 million to First Interstate’s loan-loss reserves at its Texas subsidiary and provisions for the previously announced spinoff of about $400 million in non-performing assets to a newly created, publicly traded company.

The third-quarter loss was slightly higher than some analysts had projected last month when First Interstate said it would make provisions for the deteriorating real estate loan portfolio at First Interstate Bank of Texas and shift non-performing loans to a new, so-called bad bank.

The latest quarter includes a $150-million charge for the estimated markdown to market value on the non-performing assets to be transferred to the new company, which will be passed along to current First Interstate shareholders in the form of a dividend. The transaction is expected to be completed early next year.

The bank holding company, which also owns First Interstate Bank of California, said the elimination of expenses related to the non-performing assets will have a positive effect on earnings next year and in future years.

Confirms Cutback

First Interstate Chairman and Chief Executive Joseph J. Pinola said in a statement that the company expects fourth-quarter results “to reflect the strong performance achieved in the first and second quarters this year, when operating earnings reached record levels.” For the first nine months of the year, First Interstate had a loss of $14.6 million.

First Interstate also acknowledged Wednesday that it is cutting the operations of its Pasadena-based First Interstate Mortgage, thus eliminating the jobs of the chairman and president of that unit and about 70 positions in its commercial income property division.

“We are still very much in the mortgage banking business and intend to be a major player,” a spokesman for the bank holding concern said.

The commercial income property division has been restructured to focus on brokering of permanent loans to institutional clients and the servicing of commercial loans, the company said. The division no longer will be involved with interim construction lending, the company added.

Also, servicing of the division’s loan portfolio plus current and pending relationships will be transferred to other affiliates of First Interstate Mortgage, First Interstate said.

Andrew Studdert, First Interstate Bancorp senior vice president, will head the mortgage company with primary responsibility for residential lending. Alvin G. Behnke, president of First Interstate Mortgage Co. of Illinois will be in charge of commercial activities, the company said.

Ralph Winkler, executive vice president of the mortgage company, has been named manager of the commercial income property division and will report to Behnke, the company said.

Part of Restructuring

Jack Opperman, chairman of the mortgage company, and Larry Becker, president, will be leaving First Interstate to pursue other interests, the company said.

First Interstate said the reorganization of the California mortgage company is consistent with the restructuring plan announced last year, under which the company would trim $6 billion to $7 billion in assets and eliminate 1,000 jobs in order to shed weak assets and improve First Interstate’s position as a consumer-oriented regional banking company.

The company had hoped to offset the transfer of the $400 million in non-performing loans by raising money from the sale of its mortgage servicing operations and its 50% interest in headquarters building in downtown Los Angeles.

The company was unable to sell the mortgage unit and the sale of the bank building has been delayed by the May 4 fire that gutted some floors of the building.