Valley Federal’s Stockholders Upset at Stock Price, Earnings

The annual meeting last Thursday of Valley Federal Savings & Loan was marked by plenty of grumbling by stockholders. Then again, the Van Nuys-based thrift has given them plenty to grumble about.

Valley Federal, with $3.44 billion in assets, lost $3 million in 1988 and last week reported a first-quarter profit of $178,000, compared with a $1.4 million profit a year earlier.

All Valley Acceptance, a loss-ridden Valley Federal subsidiary that provides loans for mobile homes, lost another $3.8 million in the quarter. Moreover, Valley Federal’s management is not optimistic about the S&L;’s overall results for the rest of this year.

“We anticipate disappointing results in subsequent quarters” if the recent rise in interest rates, which has cut Valley Federal’s profit margins, does not quickly end, Jack Allewaert, chief operating officer, told shareholders.

Stock Price Sliding

Valley Federal’s shares, meanwhile, have been steadily sliding. The stock, which traded at $15 a share a year ago, last week sank to a 52-week low of $9.25 a share. On Monday, it closed unchanged at $9.75 a share in over-the-counter trading.

And a takeover of Valley Federal, which likely would provide the stockholders with an immediate premium price for their shares, has gone from looking imminent a year ago to looking doubtful any time soon.

Citadel Holding Corp., the Glendale parent of Fidelity Federal Savings & Loan, has been talking with Valley Federal about a merger and has been reviewing the S&L;’s books for the past several months. But at the annual meeting, Valley Federal President Dan E. Nelms reiterated that Citadel still has not made a firm offer to buy the thrift.

In January, 1988, Citadel offered $18.50 a share for Valley Federal, but the bid was never cleared by regulatory authorities, and within six months, Citadel abandoned the proposal, saying the S&L; was no longer worth that price.

“We have urged Citadel at all of our meetings to complete their investigation and provide our board of directors with a firm offer for consideration,” Nelms said. “We believe it is in everyone’s best interest to resolve this issue as quickly as possible.”

Sale Plan

Meanwhile, Valley Federal’s stockholders are losing patience with the thrift’s sagging stock price. One investor came prepared to show Nelms that Valley Federal could raise a sizable amount of cash by selling some or all of its 45 branches. The stockholder first asked Nelms how much a branch office would fetch and was told it often is calculated as a percentage of the branch’s deposits. (Valley Federal’s deposits total $2.5 billion.)

The stockholder then sat down, toted up some figures on a piece of paper, again raised his hand and told Nelms that selling the branches could raise up to $21 a share, or $120 million. Nelms did not comment on those figures and said only that such a plan is one of the alternatives being considered by Valley Federal’s board.

Several other shareholders asked not only about Citadel, but also whether other suitors are talking with Valley Federal about a takeover. (There have been none since early last year, Nelms said).

The question of what Citadel might do continues to shadow Valley Federal. In a telephone interview, Samuel C. McCarver, Citadel’s chief operating officer, said “the situation is still alive with Valley Federal, and we’re still studying it.” But he said Citadel is reluctant to make a bid until it knows the outcome of President Bush’s plan to require S&Ls; to increase their capital, or net worth, as part of the administration’s effort to bolster the ailing S&L; industry.

Bush’s plan won a major victory last week when the House Banking Committee voted to toughen capital standards for thrifts. A similar measure is working its way through the Senate.

At Valley Federal’s annual meeting, another disgruntled Valley Federal stockholder suggested management consider a stock buyback to boost the price of the remaining shares. But Allewaert told the shareholder that is not a viable option because of the Bush plan. A buyback might only deplete the capital Valley Federal needs, he added.

Also at the meeting, the stockholders approved management’s proposal to reimburse businessman James J. Cotter for $347,869, the amount Cotter spent last year in a heated proxy fight to win a seat on Valley Federal’s board. The proposal, which needed a majority approval, won 78% of the stockholders’ votes.

Cotter, who has repeatedly urged that Valley Federal be sold to enhance the stockholders’ investment, did not come to the 45-minute meeting.