S&L; At Odds With Ex-Accountant Over Value of Stock Swap : Lincoln Savings to Report $36-Million Quarterly Loss
The parent company of Irvine-based Lincoln Savings & Loan said it suffered a third-quarter loss of about $36 million and took issue with its former accountant over how to record the S&L;’s acquisition of a large stake in a foreign investment firm.
But Lincoln and its parent, American Continental Corp. of Phoenix, said they will abide by the decision of the accounting firm of Arthur Young & Co.
Third-quarter results are expected to be released today. But American Continental issued a terse statement about the loss Friday, sending its volatile stock into a tailspin from which it partially recovered Monday.
Lincoln acquired 20% of General Oriental Investment Ltd. by turning over to General Oriental its interests in Crown Zellerbach Corp. in San Francisco and Grand Union Co., a food chain based in Wayne, N.J.
American Continental believes that the stock swap increased the value of the S&L;’s holdings by up to $81 million, and it wanted to include $56 million of that gain in its third-quarter financial results.
Had the gain been included, American Continental would have reported a profit for the third quarter instead of a loss.
None of the amount is being credited to the third quarter, an American Continental spokesman said, “because of differing views concerning the application of generally accepted accounting principles” and because of uncertainty over how the Securities and Exchange Commission would view such earnings.
The spokesman was unsure how much of the increased value of the S&L;’s new holding could be credited to the fourth quarter.
Lincoln Savings had $4.75 billion in assets at the end of June, or about 90% of the parent company’s assets.
Before the accounting dispute with Arthur Young was settled, American Continental dropped the accounting firm and replaced it with Touche Ross & Co. The switch marked American Continental’s second change in accounting firms in 3 years.
The stock swap will give General Oriental about 60% of Crown Zellerbach and a controlling interest in Grand Union, the spokesman for American Continental said. The Cayman Islands investment firm has invested more than $1 billion in companies worldwide, the spokesman said.
Monday, the company’s stock closed at $8.25 a share, up 50 cents in over-the-counter trading. Friday, the day the firm revealed its expected loss, the stock fell $1.25 to close at $7.75 a share. Thursday, the stock was up 50 cents, closing at $9 a share.
Such swings have been common for a stock that has traded as high as $13 a share and as low as $4.50 a share in the last 2 years, said James M. Marks, an analyst with SNL Securities in Hoboken, N.J.
“Investors definitely have some short-term interest in it,” Marks said. “But it’s unfathomable what’s going on over there. They don’t divulge information on a regular or even consistent basis.”
