Great American Has $59.4-Million Third-Quarter Loss
Great American Bank announced a $59.4-million third-quarter net loss Tuesday after setting aside loan-loss provisions totaling $93 million in a bid to put its lingering Arizona loan problems behind it.
Analysts generally applauded the most recent reserves taken by Great American, although some questioned whether its Arizona problems are truly over. Great American has said previously that it turned the corner on problem loans only to surprise the investment community with larger loss provisions in subsequent quarters, several analysts noted.
“The question is, how much worse can Arizona get,” said David Hochstim, vice president at Bear Stearns, & Co. in New York. Great American stock closed down $.375 at $9.75 in New York Stock Exchange trading Tuesday. With $16.5 billion in assets, San Diego-based Great American is the seventh largest S&L; in the nation.
Great American also disclosed that it has reduced payroll by 5% or 187 positions, including 59 lay-offs, since the first of this year as part of a cost reduction program. And more job reductions are expected in coming months at Great American, chief financial officer Jim Krzeminski said Tuesday.
The S&L;’s third-quarter loss was also affected by a $7.6-million write-down in the capitalized value of its loan servicing income. The write-down follows a $15.7 million write-down on capitalized income in the second quarter. Officials blamed an unforeseen high level of loan prepayments for the write-downs.
The third-quarter loss, which contrasts with a $8.1-million profit for the third quarter last year, would have been steeper had the S&L; not realized $22.5 million in pre-tax gains from real estate sales. Great American’s real estate gains for all of 1988 totaled $25 million.
Great American’s $800-million portfolio of Arizona commercial real estate, apartment and land loans, most of which were acquired with the 1986 acquisition of Home Federal Savings of Tucson, has been a continuing source of woes. Great American’s loans, and those of other Arizona lenders, have been hit hard by tax law changes, the state’s generally overbuilt housing market and plunging land prices.
The $93-million in loss provisions taken in the third quarter is the latest in a sequence of provisions going back two years or more to cover Arizona problem loans. Of the nearly $400 million in loan loss provisions Great American has set aside over the last 11 quarters, half are attributable to Arizona.
Of the $93 million, $43 million is for anticipated losses on specific loans, and another $50 million was set aside to cover “general market conditions” or losses that could result from further market deterioration. The extra reserves were part of the S&L;’s effort to “get (Arizona problems) behind us,” Krzeminski said.
The uncertainty hanging over Great American’s Arizona loans makes valuing Great American stock difficult and also explains why the investment community has been cool to its stock in recent months despite the takeover speculation rampant in the S&L; industry, said Bruce Harting, an analyst at Salomon Brothers in New York.
Nancy Spady, a securities analyst with Morgan Stanley in New York, commended Great American for “really trying” to solve its problem loans but said that the “difficult part is to know whether this is the end of it.”
“They charged off a fair amount (of bad loans) in the second quarter and have taken an even bigger charge in the third quarter,” Spady said. “The key is how much of the price declines they have protected against.” The provisions, she said, “certainly seem conservative, but you never really know.”
Great American also said it plans to form a holding company, subject to shareholder approval, and that it will issue a 5-cent-a-share dividend Nov. 30 to shareholders of record as of Nov. 3. In July, Great American cut on its quarterly dividend to 5 cents from 10 cents a share.
