Valley Federal Loss Pinned to Subsidiary
Valley Federal Savings & Loan reported a third-quarter loss of $70.6 million Wednesday because of pretax charges stemming largely from a troubled subsidiary that makes loans for mobile homes.
The charges, although seen as a necessary step, shrunk Valley Federal’s net worth considerably and may force the Van Nuys-based thrift to sell assets to raise its capital levels.
Valley Federal attributed most of the charges, totaling $89.9 million, to a $62.2-million writeoff at the mobile home subsidiary. Valley Federal also increased its loan-loss reserves by $18 million and eliminated $9.9 million in intangible assets from its books.
The third-quarter loss contrasted with net income of $132,000 during the 1988 period. Total assets for the thrift fell 8% as of Sept. 30 to $3.2 billion from $3.4 billion a year earlier.
The thrift said the writeoffs would end a string of losses that it blamed on the mobile home subsidiary, All Valley Acceptance Co., which suffered higher-than-expected rates of repossessions and delinquent loan payments.
For the nine months ended Sept. 30, Valley Federal lost $73 million.
Valley Federal President and Chief Executive Dan E. Nelms predicted that the S&L;’s 1990 profit would approach its record profit level in 1986, when the thrift had net income of $17 million.
Valley Federal stock rose $1 a share to close at $4.25 in over-the-counter trading Wednesday.
But the writeoffs substantially lowered Valley Federal’s net worth, to $34 million as of Sept. 30 from about $107 million a year earlier.
And after the move, Valley Federal had only about 80 cents in “tangible capital”--essentially cash--for every $100 in total assets, compared to $2.45 a year ago. That could be a problem, because the federal S&L; bailout law calls for thrifts to maintain a ratio of $1.50 in tangible assets for every $100 in total assets, beginning in 1991. The requirement is designed to give thrifts more of a cushion against losses.
Nelms said the thrift would move to meet that requirement by shrinking its assets and by bolstering cash with profits and possibly with the proceeds of a new offering of stock or bonds.
Nelms predicted that Valley Federal’s near-record profits in 1990 would position the thrift to sell bonds or stock, or to be acquired by another thrift.
The continuing problems at AVAC were “the major factor” behind the decision in late September of Glendale-based Citadel Holding Corp. not to acquire Valley Federal, said Dan Williams, an analyst with Sutro & Co. in San Francisco.
Valley Federal also reported that it was undergoing audits by the federal Office of Thrift Supervision and the Federal Deposit Insurance Corp. Nelms described the audits as “ordinary.”
