Great Western Expects Loss of $75 Million in 4th Period

Great Western Financial, the nation’s second-largest thrift and one of the healthiest survivors of the nation’s savings and loan mess, disclosed Tuesday that it expects to post a $75-million loss in the fourth quarter stemming from problem commercial and apartment loans.

Great Western said most of the loans were made outside of California, primarily in Arizona, Texas and Florida. The bulk of them also were made before 1987, when Great Western virtually stopped making such loans in favor of more conservative single-family home loans and consumer loans.

Although securities analysts had expected Great Western to show some problems with loans, they said the loss is surprising and shows an aggressive move by Great Western to rid itself of its problem loans and properties.

“Great Western is one of the Rolls-Royces of the business. It’s not a case where you expect to see any engine trouble, or even any sputtering,” said Jonathan Gray, a thrift analyst with Sanford C. Bernstein & Co. in New York.

Specifically, Great Western will devalue foreclosed real estate by $50 million, set aside $50 million as a reserve for specific problem loans and set aside another $100 million as a general reserve for unspecified loans that may become a problem in the future. Taking the actions will free Great Western to sell its problem properties for money that can then be invested in profitable loans.

Great Western Financial, the Beverly Hills-based parent of Great Western Bank, is posting its first quarterly loss in seven years. Despite the large loss, the company said, it expects to post a profit of more than $100 million for the entire year, compared to $248 million in 1988. In the first nine months, Great Western earned $177 million, compared to $188 million a year earlier.

James F. Montgomery, Great Western chief executive, said in an interview that the announcement is not a sign of widespread problems in real estate lending for Great Western. He said that the thrift’s $25-billion portfolio of single-family mortgages is in good shape and that Great Western decided to take the large loss now to deal with its problems as it enters the 1990s.

“It’s no fun to do this, but we want to get it behind us,” Montgomery said.

The problems generally involve loans for developing office buildings, shopping centers and apartment complexes.

Great Western is the latest of several financial institutions to show problems in Arizona, which is suffering through a real estate recession caused mostly by overbuilding and a slowdown in immigration. Other institutions with problems in Arizona include First Interstate Bancorp, Great American Bank, Security Pacific Corp. and Chase Manhattan Corp.

Montgomery attributed the problems with the loans to two other general factors: the continuing impact of the 1986 tax reforms that made investing in commercial projects less desirable and an abundance of property being unloaded by troubled thrifts.

Analyst Gray said that Great Western’s problem is not that its troubled assets have been increasing but that the size of its problem assets has remained steady and is not declining.

Great Western said it that its non-performing assets--made up of real estate that it has foreclosed on and loans that are delinquent 90 days or more--total $718 million, or about 2% of its total assets. Single-family mortgages, considered among the safest of loans, now make up more than 80% of Great Western’s $30 billion in loans.

Separately, Great Western Financial disclosed that it plans to raise $300 million through a debt offering and that the money will be shifted to the thrift to bolster its capital, which is the cushion financial institutions maintain to protect against losses. Great Western said it should easily meet new, tougher federal standards that go into effect within two weeks.

GREAT WESTERN FINANCIAL AT A GLANCE

Beverly Hills-based holding company for Great Western Bank, the nation’s third-largest thrift.

Year ended Dec. 31 1988 1987 1986 Revenue (billions) $3.17 $3.97 $3.77 Net income (millions) 248 210 301

Assets $32.8 billion

Loans $29.1 billion

Capitalization $9.5 billion

Shares outstanding 128.2 million

12-month price range $14.25-$25.125

Tuesday close (NYSE) $19.25, unchanged

Source: Standard & Poor’s