Imperial S&L; to Shrink Assets by $2 Billion, Change Strategy
Stung by its forays into unconventional loan activities, Imperial Corp. of America said Thursday that its Imperial Savings of California unit will shrink assets by 17% and reroute itself into more “traditional thrift activities.”
Imperial also said it expects to report a loss for the second quarter ended June 30, in part because of fallout from its purchase of a fraud-ridden auto loan portfolio from Glendora-based Grand Wilshire. Loan-loss provisions taken for the Grand Wilshire portfolio were largely responsible for Imperial’s $25.2-million fourth-quarter 1988 loss and its minimal profit in this year’s first quarter.
The plan to shrink assets by $2 billion is Imperial’s direct response to stiffer, risk-based capital standards for savings and loans to be included in the $300-billion S&L; rescue bill being considered by Congress. To shrink assets, Imperial said Thursday, it will sell its $400-million auto lease portfolio and its $275-million bank card business as well as reduce its $1.35-billion “junk bond” portfolio.
The company wouldn’t specify the amount of reduction in its junk bonds, which represent 12% of Imperial’s $11.9 billion in assets. The moves are to boost capital as a percentage of assets.
The company also said it will “downsize” its commercial real estate lending activities. Although declining to specify the expected second-quarter loss, Imperial said it will make loan-loss provisions totaling at least $26 million to cover bad consumer and mobile-home loans.
Imperial also said it expects a $10-million loss on the sale of its auto lease portfolio and a $22-million writedown in the value of certain junk bonds.
Analyst Allan Bortel of Shearson Lehman Hutton in San Francisco estimated that the loss could total as much as $30 million.
Imperial’s change in strategy, announced after a daylong directors’ meeting, had been expected for the past week and follows by three days the resignation of Imperial President Kenneth Thygerson by “mutual agreement” with Imperial’s board. Thygerson was replaced by board member Allan Tessler, a New York attorney and financier.
Moves by Thygerson
After taking over as head of Imperial in September, 1985, Thygerson led the thrift into several non-traditional S&L; activities, including car and mobile-home loans and junk bonds, saying Imperial could not compete with larger S&Ls; in “plain vanilla” activities such as residential home lending. Imperial is the nation’s 16th-largest thrift in terms of assets.
Although ICA’s “get rich quick strategy” failed, analyst Bortel said he saw no reason why ICA couldn’t effect a “pretty good turnaround” later this year “if you got a chief executive who came in and rolled up his sleeves.” Bortel noted ICA’s relatively healthy interest rate spread, which is the difference between what it pays to depositors and receives from borrowers.
The S&L; bailout bill will not only affect S&Ls; such as Imperial by forcing a reduction of junk bond investments but could eventually disallow the inclusion of good will in figuring shareholder equity. Carried as an asset on a company’s balance sheet, good will is the amount of a purchase price above the book value.
Below Minimum
Disallowing good will, ICA’s tangible net capital now stands at only 1.61% of assets, well below the 3% minimum requirement expected in the bailout bill. To meet the capital requirements, ICA thus must either raise cash or shrink assets to improve its capital-to assets ratio. At ICA’s April annual meeting, Thygerson said ICA had unsuccessfully been seeking a buyer or investor for the thrift.
The junk bonds on which ICA is taking the $22-million writedown were issued by Integrated Resources. The loss is resulting from the recent downgrading of the credit-worthiness of the bonds’ issuer, which reduces the securities’ market value. Taken as a whole, ICA’s $1.35-billion junk bond portfolio is worth $100 million, or 8% less than what ICA paid for it, ICA vice president Andy Micheletti said.
