FarWest Sells Loan Division to Its Managers : Banking: Newport Beach S&L; must cut back to comply with new regulations. Two executives who built up loan offices will take them over Jan. 2.
In the first major step to downsize operations, FarWest Savings & Loan said Tuesday that it has sold its mortgage banking division to the two managers who built the unit up over the last five years.
The thrift’s nine loan-origination offices throughout the state will become part of FarWest Residential Services on Jan. 2, said Wendell C. Shirk, the new firm’s executive vice president.
The cost of the deal, which was agreed to on Dec. 4, was not disclosed.
The S&L;’s parent company, FarWest Financial Corp. in Beverly Hills, took a minority interest in the new partnership headed by Shirk and Cliff Piscitelli, president of FarWest Residential. The partners, who have extensive experience in the mortgage banking business, put up $3.5 million to finance the new venture, Shirk said.
The transaction includes a provision for the new company to service FarWest’s $1.5-billion home mortgage portfolio, the companies said.
“On balance, we’re very pleased with the transaction,” said Charles H. Green, the S&L;’s president. “It fits in with our overall strategic plan for repositioning FarWest for future competition.”
The transaction is related to FarWest Savings’ efforts to comply with new federal capital regulations for thrifts. About a third of the thrift industry, including FarWest Savings, does not meet one or more of the three new tests for levels of capital, an institution’s final reserve against losses.
The thrift has been undergoing a restructuring to reduce its assets to $4.5 billion by the end of the year--from a high of $4.8 billion earlier in the year--and as low as $3.5 billion in the near future, Green said.
The need to cut assets, revenues and expenses is similar to that of many thrifts nationwide, as a result of new financial requirements imposed by the federal financial institutions law enacted in August.
As it reduces assets, FarWest Savings also is cutting back on its staff. Three weeks ago, FarWest laid off seven employees in its marketing unit as it consolidated jobs. More layoffs are expected.
The new mortgage-servicing company will take with it 200 of the thrift’s employees. That will mean a nearly 29% reduction in the S&L;’s 520 employees.
In addition to new capital rules, federal law forces S&Ls; to sell their high-risk, unrated 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 the tests. Meantime, losses are expected to continue in this quarter.
FarWest is still a solvent, going concern, but it had to act quickly to maintain its health, Green said recently.
So the S&L;, which is controlled by the wealthy Belzberg brothers from Canada, took the classic approach of cutting back on assets to increase its ratio of capital to assets. It also canceled dividends so that it could plow any future earnings back into capital to boost those ratios.
The S&L;’s mortgage banking division, which has been funding more than $60 million in home loans a month, will continue to operate through the end of the year. Employees, as well as customers, will hardly notice a change because the new firm will continue to use the division’s Irvine headquarters.
