O.C. Thrifts Cut Losses Dramatically Last Year

Orange County savings and loan associations reported a combined loss of $347 million in 1988, a dramatic improvement over a record $920-million deficit for the previous year.

The losses were chalked up mainly by a handful of large, insolvent institutions, which have contributed heavily to the flow of red ink in the troubled S&L; industry. Chief among them was American Savings & Loan in Irvine, which had been the industry’s single biggest basket case before its purchase in December by a Texas investor group.

The 1988 results, released Wednesday by the Federal Home Loan Bank in San Francisco, are attributable in part to the county’s hot housing market, which fueled demand for mortgages.

“It’s still a seller’s market,” said Stephen W. Prough, president of Western Financial Savings Bank in Orange. “There’s still an awful lot of buyers out there looking for homes.”

The improvement also reflects the closing of several failed thrifts that contributed to 1987’s record loss and $3.1 billion in federal assistance provided by regulators to bail out American and three other insolvent institutions.

The local picture contrasts with the generally worsening condition of thrifts. U.S. S&Ls; posted a record combined loss of $12.1 billion in 1988, up from $7.8 billion the previous year.

California-based S&Ls; enjoyed one of the better years of this decade with combined profits of $547 million last year, up from $301 million in 1987.

Despite the improvement in Orange County, last year’s results show that many of the county’s 35 S&Ls; are still struggling to recover from the same problems that triggered a nationwide thrift crisis.

In all, 15 Orange County savings institutions posted losses. And of the 19 profitable institutions, several reported hefty earnings declines, including Lincoln, FarWest and Newport Balboa.

Gerry Findley, a financial-institutions consultant in Brea, said that many Orange County savings institutions were hurt by an increase in interest rates that began in August.

“We’re in a transition period,” said Western Financial’s Prough. There is no clear consensus on whether rates will go higher or lower, he added, although he predicts that rates will decline in the second half of the year.

But even if rates continue to go up, he said, “institutions are better prepared to handle it than they were in the early 1980s.” That is because they have made more loans with variable interest rates that will rise along with interest rates.

The savings and loan industry has been devastated in recent years by a combination of problems, including rising interest rates, industry deregulation, poor management and, in some cases, outright fraud.

Still, the need to rescue about 500 thrifts nationwide and President Bush’s plan for transfering oversight of S&Ls; and their battered deposit-insurance fund to federal banking regulators have stirred debate on whether S&Ls; will survive.

“Savings and loans are going through a consolidation period, and eventually they’ll go through a shakeout, and you’ll see the savings and loan industry disappear,” Findley predicted.

But others in the industry are convinced that S&Ls; will still be needed to carry out their original mandate to provide financing for home ownership.

“We’d be doing great if everybody would just leave us alone, if there weren’t so much adverse publicity,” said Robert K. Parker, president of Sterling Savings & Loan in Irvine. “Some of us have continued to do very well under the adverse conditions.”

Parker and others in the industry said that rising interest rates probably will cut into already-slim profit margins at even those S&Ls; that are healthy. Keeping costs down, he said, will help profitable savings institutions stay in the black.

The federal government provided a total of nearly $3.1 billion in assistance last year in connection with the sales of four insolvent county thrifts: American S&L;, Beverly Hills S&L;, Butterfield S&L; and Ramona S&L.;

American was sold on Dec. 28 to the Robert M. Bass Group in Fort Worth, which provided $350 million to go with $1.7 billion in federal assistance. American was split into two institutions, American Savings Bank and New West Federal Savings & Loan. Both are operated by New American Holding Inc. in Irvine.

Beverly Hills Savings was bought a few hours before midnight on Dec. 31 by Michigan National Corp., a Detroit-area banking firm. Regulators provided $983 million in financial assistance, while Michigan National kicked in $52 million. The sale came too late to affect the year-end results of Beverly Hills, which is based in Mission Viejo.

Butterfield Savings in Santa Ana was bought at the end of the third quarter by Downey S&L; in Newport Beach, which set up Butterfield as a subsidiary and contributed $40 million toward the purchase. Regulators provided $281.1 million in assistance.

Ramona Savings in Orange was bought in February, 1987, by Midwest Federal S&L; in Minneapolis with $96.4 million in federal assistance and $5.6 million in Midwest’s cash. Midwest was seized last month by federal regulators.

In addition to regulatory actions, several struggling S&Ls; are finding their own solutions. Western Empire Savings in Yorba Linda found a New York buyer to invest in the institution late last year. Huntington Savings in Huntington Beach saw its capital base--its insurance against losses--nearly evaporate, but it remained profitable and restructured itself after searches for buyers failed.