Healthy HomeFed Joins Plunge in Stock Prices for Savings and Loans
Until recently a bright light in the otherwise-gloomy savings-and-loan firmament, HomeFed Corp. stock has dropped $10.50, or 23.8%, over the last three weeks to close Wednesday at $32, a sign of investors’ dimming enthusiasm for even higher-quality S&Ls.;
The drop was precipitated by a decrease in HomeFed’s third-quarter earnings, resulting mainly from higher loan loss provisions set aside to deal with an alarming jump in non-performing loans. The non-performers as of Sept. 30 were 2.85% of assets, up from 2.45% of assets as of June 30. HomeFed’s apartment loans are particularly problematic, analysts said.
HomeFed’s provisions to cover probable loan losses were $22.9 million for the quarter, more than double the $10 million for the second quarter this year. The provisions caused HomeFed third-quarter profit to slip to $23.9 million from $27.9 million for the year-ago period.
Not exactly apocalyptic news, but nevertheless damaging for HomeFed, which seemed immune to the severe loan quality problems experienced by other San Diego-based S&Ls; of late. On Oct. 23 before the earnings were announced, HomeFed stock was selling as high as $42.50.
HomeFed President Robert Adelizzi on Monday downplayed the stock drop, saying the shares experienced a run-up earlier this year fueled by ungrounded takeover speculation. He placed the stock drop, as well as that of other S&L; stocks, within the context of an industry victimized by increased economic uncertainty, the volatility of the stock market in general, and the after-effects of the S&L; bailout bill that could lead to a glut of foreclosed real estate put on the market by federal regulators.
On top of that, California S&L; stocks have been affected by the earthquake and fears that some borrowers will walk away from mortgaged properties, Adelizzi said.
Although he acknowledged that the size of the loan loss provision was something of a surprise, Adelizzi said the S&L;’s problems with apartment loans have been hinted at in public disclosures over three years.
Nancy G. Spady, a savings-and-loan analyst with Morgan Stanley investment bankers in New York said that HomeFed stock’s decline illustrates how investors are “very scared about credit quality. HomeFed doesn’t look that bad, but investors are worked up about the non-performing loan portfolio.”
Shares of two other Southland S&Ls;, Great American Bank and Imperial Corp. of America, parent of Imperial Savings of California, have also been battered in recent days. Both S&Ls;’ stocks hit new lows last week after each reported huge losses caused by provisions set aside to cover expected loan and investment losses.
Great American, whose shares closed at $7.75 Wednesday, down from a 52-week high of $14.875, has been beset by problems with its $800-million Arizona commercial real estate loan portfolio, problems that analysts fear are far from over. Two weeks ago, Great American set aside reserves totaling $93 million to cover bad real estate loans, more than half of them in Arizona. The provisions resulted in a third quarter loss of $59.4 million.
ICA stock closed at $2.125 per share Wednesday. The S&L; last week reported a $103.1-million third-quarter loss, thanks in large part to a $92.2-million after-tax loss on its $1.2-billion junk bond portfolio.
