BANKING / FINANCE : S&L; Layoffs Mirror Efforts to Comply With New U.S. Rules

The toll from the devastating losses in the savings and loan industry is measured not only in the more than $166-billion cost to taxpayers to resolve failed thrifts. It is also measured by the jobs that employees lose as healthy S&Ls; reduce expenses to survive.

The recent layoffs of seven employees at FarWest Savings & Loan in Newport Beach and the prospect of more lost jobs there is typical of what many thrifts nationwide are doing to comply with new financial requirements imposed by a recent federal law.

About a third of the nation’s S&Ls;, including at least four Orange County thrifts, are not expected to meet the three new tests for levels of capital, an institution’s final reserve against losses. In addition, the federal financial-institutions law enacted in August forces S&Ls; to sell their high-risk corporate securities, known as junk bonds, within five years.

The capital requirements and the junk bond ban have hit FarWest hard. The S&L; lost $22.9 million in the third quarter, mainly from writing down the value of its junk bonds, and it doesn’t meet two of the three capital tests. It may need as much as $75 million in new capital to meet one of the tests. Meanwhile, losses are expected to continue in this quarter.

FarWest is still a solvent, going concern, but it still had to act quickly to maintain its health, according to acting president Charles H. Green.

So the S&L;, which is controlled by the wealthy Belzberg brothers from Canada, took a classic approach: It started cutting back on assets to increase its ratio of capital to assets. It already had canceled dividends so that it could plow any earnings back into capital to boost those ratios.

But cutting back the S&L;’s assets and revenue can’t be done without paring liabilities as well, Green said. “The law of economics forces us to focus on expenses,” he said.

So two weeks ago, layoff notices were sent to seven FarWest employees in the marketing unit. That operation, Green said, was “a luxury we no longer can afford.” And more layoffs among the thrift’s 730 workers will follow, he added.

How many more will depend on how small the S&L; must become to comply with federal law. The institution plans to end the year with $4.5 billion in assets, a $300-million drop from its peak, and it may fall to $3.5 billion or lower.

“Down the road, those who survive will have to become more efficient,” he said.