Gibraltar S&L; ‘Unsound,’ U.S. Regulators Say : Largest Troubled Thrift in State Expects Big Fourth-Quarter Loss

Gibraltar Financial, one of California’s 10 largest thrift companies, disclosed Wednesday that federal savings and loan regulators consider it a “troubled institution” in an “unsafe and unsound” condition.

In its surprise announcement, the parent company of Gibraltar Savings in Beverly Hills also said it expects to report a loss between $30 million and $35 million for the final quarter of 1988, bringing its loss for the year to between $71 million and $76 million.

James N. Thayer, Gibraltar’s chief executive, challenged the harshness of the regulators’ assessment, saying that “we are not General Motors” but that the firm still meets minimum federal requirements for capital, even with the anticipated fourth-quarter loss.

A financial institution’s capital is its cushion against losses.

Precautionary Stance

Thayer said he believes that the tough stance by regulators reflected their desire to crack down on problem thrifts before their capital falls below the required minimums. Normally, regulators do not act until an institution is actually below the minimum.

Officials at the Federal Home Loan Bank of San Francisco, which made the “unsafe and unsound” judgment, refused to comment. Thayer said he understood that regulators have given other California thrifts the same kind of news.

While disputing the regulators’ assessment, Thayer conceded that he does not believe Gibraltar can return to financial health without assistance from outside investors and from the Federal Savings & Loan Insurance Corp. Columbia Savings in Beverly Hills is among those believed to be interested in buying the firm.

In an interview, Thayer said Gibraltar’s present troubles stem largely from rising interest rates that have hurt profit margins on its large portfolio of fixed-rate assets, including home loans and mortgage-backed securities. The company has assets of more than $14 billion.

The company needs a drop in interest rates before it can become profitable again, Thayer said. “There’s not a lot of help that is going to come from other sources,” he said.

However, Thayer also emphasized that the lender remains fully open for business, taking deposits and making home loans.

Gibraltar’s announcement is the latest in a steady stream of bad news that began in 1987 when the firm announced a $155-million loss in the third quarter because of problems with real estate development loans.

Since then, the company has posted consistent losses and been plagued by turmoil in the ranks of top management. Thayer replaced longtime Chief Executive Herbert J. Young last March and took on the additional title of chairman when Jay Janis quit in December. The company is looking for a new chief executive, but Thayer, 62, would stay on as chairman.

Though the company’s problems have been well publicized, the latest development is an official confirmation of how serious the regulators consider Gibraltar’s troubles.

Gibraltar Savings has about 85 branch offices in California as well as a banking operation in the state of Washington. Its corporate logo is the “Rock of Gibraltar,” intended to be a symbol of strength and stability.

In fact, Gibraltar has now officially replaced American Savings as the largest problem thrift in California. The Stockton-based lender was recapitalized last month and bought by Texas investor Robert M. Bass.

In its announcement, Gibraltar also revealed that it has taken the unusual step of asking the regulators to reconfirm that the FSLIC insures all of its deposits up to $100,000 per account. The thrift raises large numbers of deposits through professional money brokers such as Merrill Lynch and Prudential-Bache Securities that apparently want the pledge in writing.

“They want a reaffirmation of what everyone believes is true,” Thayer said.

Also, should regulators put the company into receivership, investment bankers want reassurances that their short-term loans to Gibraltar, known as repurchase agreements, will be honored, Thayer said. These borrowings have been used by Gibraltar in buying mortgage-backed securities.

But Thayer said, “We’re not anticipating a takeover.”

The company also announced that:

- Regulators want a written plan that will outline how the firm plans to raise capital. Thayer said the plan will be ready in 45 days.

- The company will be required to submit to a supervisory agreement with the Federal Home Loan Bank of San Francisco that will limit its operations. In the meantime, Gibraltar’s assets and deposits must not increase in size.

- Though the independent audit for 1988 is still continuing, Gibraltar expects to receive a qualified opinion from its accountants that will discuss “uncertainty about the company’s ability to continue as a going concern for a reasonable period of time.”