Most of State’s S&Ls; Meet New Rules on Capital : Thrifts: Those that lack adequate cushions against losses must, within a month, explain how they will comply.
Nearly all major California savings and loans meet the federal government’s tougher new capital standards that take effect today, although some well-known institutions flunk.
Thrifts confirming on Wednesday that they will fail at least one of the three standards include Mercury Savings in Huntington Beach, Great American Bank in San Diego, Valley Federal Savings in Van Nuys, Santa Barbara Savings in Santa Barbara and Imperial Savings in San Diego. Far West Savings in Newport Beach has previously said it will not meet the requirements.
That means those thrifts lack the financial cushion against losses that regulators consider adequate. As a result, they must submit plans to the Office of Thrift Supervision within a month showing what steps they will take to comply.
If regulators consider those plans inadequate, tough growth restrictions and other measures may be imposed on the thrifts. Ultimately, regulators could seize the institutions if they believe there is no hope that they will reach adequate capital levels.
Being on the list does not mean that the thrifts are in danger of closing soon or that deposits are threatened. Deposits up to $100,000 are insured by the federal government at all savings and loans, so account holders with fully insured deposits need not worry about losing their funds.
But institutions that don’t meet the standards face increased uncertainty. Many thrift executives believe that federal regulators, still smarting from criticism that they contributed to the nation’s massive savings and loan mess by failing to crack down quickly on troubled thrifts, may prove extraordinarily tough.
“It will be difficult for institutions to operate with regulators clinging all over them. Running your business will be like driving a car with a traffic cop sitting right behind your ear,” said Robert F. Adelizzi, president of HomeFed Bank in San Diego, which easily meets the requirements.
Higher capital levels mean that thrift owners have more of their own money at risk, and presumably will use it more responsibly than savings and loans have in the past.
The new standards include three basic parts. A thrift must have $1.50 in “tangible capital”--common stock and retained earnings--for every $100 in assets. It must have $3 in “core capital”--a measurement that includes tangible capital and an intangible asset called “goodwill”--for every $100 in assets.
The third, more complex measurement is a “risk-based” standard that is determined by weighing the riskiness of a thrift’s assets, such as home loans and mortgage-backed securities, according to a formula. The initial level is 6.4% of the risk-weighted assets.
As of June 30, 58 out of 190 thrifts operating in California at that time did not meet one of the levels, according to information from Sheshunoff Information Services in Austin, Tex. Five of those, however, have since been closed or sold by regulators. Eighteen are operating under the supervision of regulators, including Lincoln Savings & Loan in Irvine and Gibraltar Savings in Simi Valley.
About 800 thrifts out of 2,600 solvent ones nationwide do not meet the requirements.
Thrifts that do not meet the standards have four main choices: shrink by selling assets, boost earnings, raise money from investors by selling securities or sell part or all of the thrift.
Columbia Savings & Loan, the maverick Beverly Hills thrift that has invested heavily in high-yield junk bonds, is one thrift having some difficulty with the risk-based measurements. According to documents filed Nov. 14 with the Securities and Exchange Commission, Columbia said it would have met all three capital guidelines had they been in effect Sept. 30.
But Columbia notes in the filing a disagreement with the federal Office of Thrift Supervision about whether money it has set aside for unspecified losses on investments such as junk bonds can be considered as part of the capital used to figure its risk-based level. Its compliance with that guideline, Columbia notes in the documents, hinges on how that dispute is resolved.
Clearly the risk-based level is the most complex and difficult to meet, even for thrifts that otherwise are well capitalized. Home Savings and Great Western, for example, issued debt to bolster their capital to meet the risk-based measurement.
Richard H. Deihl, chairman of Home’s parent firm, Los Angeles-based H. F. Ahmanson & Co., said the debt was issued because regulators require Home to have capital for $7.7 billion in mortgages it previously sold to the Federal National Mortgage Assn. That is because Home agreed to take some responsibility for the loans if they go bad.
California Federal, another major Los Angeles thrift, did not issue debt but transferred capital from its parent firm, CalFed, to the thrift. Another major thrift, Glendale Federal, recently sold about $350 million in loans, for an $85-million after-tax gain, as part of its effort to meet the standards.
San Diego County Business Editor Chris Kraul contributed to this story.
FAILING TO MEET THE NEW STANDARDS
Major Southern California thrifts that do not meet new capital rules*
The following savings and loans fail to meet at least one of the new capital standards set by the federal Office of Thrift Supervision. In each case, thrift executives plan to submit plans by Jan. 7 outlining steps they believe will bring them into compliance. At all of the institutions, deposits up to $100,000 are insured by the federal government.
Far West Savings (Newport Beach): Will not meet two of three requirements. Is shrinking its operation and has laid off some of its staff.
Financial Corp. of Santa Barbara (Santa Barbara): Parent of Santa Barbara Savings is trying to exchange stock for debt.
Great American Bank (San Diego): Thrift fails two of the standards, but says it will meet one in a few weeks and the other in a couple of years. One action it is taking is to sell loans made to its real estate development subsidiary.
Imperial Corp. of America (San Diego): Parent of Imperial Savings is trying to restructure by selling its junk bonds, credit card portfolio and other assets.
Mercury Savings (Huntington Beach): Does not meet the three standards. Plans to continue shrinking in effort to comply.
Valley Federal Savings (Van Nuys): San Fernando Valley thrift hurt by losses at a manufactured-home lending unit. Plans to continue cutting costs and shrinking.
* (Does not include major thrifts operating under government supervision, such as Lincoln Savings and Gibraltar Savings)
